BEARISH MOMENTUM TO DISSIPATE?

LAST Week’s firm external tone, aided by improving United States and China manufacturing data that eased global growth worries and reports that the USChina trade talks are progressing well, helped lift the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) off the lowest close in more than two years.

Lower-tier oil and gas counters dominated trade on the broader market on positive news flow and improved sentiment on the sector, as global crude oil prices stayed buoyant at near fivemonth highs due to tighter global supply and rising demand.

Week-on-week, the FBM KLCI eased 1.82 points, or 0.11 per cent, to 1,641.81, with gains in DiGi.com (+15 sen), Genting Bhd (+14 sen) and Sime Darby (+13 sen) offset by corrections in Nestle (-RM1.30), Public Bank (-28 sen), IHH Healthcare (-17 sen) and AmBank (-13 sen).

Average daily traded volume increased to 2.78 billion shares worth RM1.91 billion compared with 2.35 billion shares valued at RM1.82 billion in the previous week, with most of the trading focused on lower liners and small caps.

Market reacted positively to President Donald Trump’s comment last week that the US and China were close to a trade deal that could be announced within the next four weeks and it would take additional two weeks beyond that to review the fine print.

On the local front, while external uncertainties should continue to undermine any strong rebound potential in the second quarter, the FBM KLCI could be due for a technical rebound in the near term due to easing selling pressure.

The FBM KLCI stands out as the only underperformer in this region after correcting 2.8 per cent in the first three months of this year, a big contrast to an expansion of 4.8, 4.4 and 6.1 per cent in Thailand, Indonesia and Philippines’ key indices, respectively.

The upside risk for the FBM KLCI this year could emerge from a win-win deal between the US and China, an agreement on Brexit and green lights from the government for the East Coast Rail Link, Penang Transport Master Plan and other big-ticket projects.

Investors are advised to buy on

weakness as external noises are expected to dissipate as we sail through the second quarter.

Maintain exposure to defensive sectors like the healthcare and consumer, nibble selectively into automotive and situational plays, especially in the construction/building materials and gaming sectors and buy undervalued oil and gas stocks.

Technical Outlook

The FBM KLCI slumped to its lowest close in more than two years on Monday as foreign selling pressured key banking and consumer heavyweights.

The key index lost 0.9 per cent to end near session lows at 1,628.66, off an early high of 1,647.59, but gainers edged losers 445 to 411 on total turnover of 2.63 billion shares worth RM1.96 billion.

The index rebounded the next day, as improving US and China manufacturing data helped ease concerns over a global slowdown. It rose 4.17 points to settle at 1,632.83 on higher turnover totalling 2.75 billion shares worth RM1.97 billion.

Stocks extended their recovery on Wednesday with the FBM KLCI rising 10.38 points to close at 1,643.21 as gainers led losers 490 to 329 on steady turnover of 2.67 billion shares worth RM1.93 billion.

Stocks rose further the following day, with lower-tier oil and gas counters hogging the active gainers list on positive news flow in the sector.

The FBM KLCI added 1.86 points to settle near session highs of 1,645.07 as gainers edged losers 437 to 397 on robust trade of 3.18 billion shares worth RM2.13 billion.

The market recovery paused on Friday as investors consolidated their positions and awaited more positive news flow in the oil and gas and construction sectors over the weekend. The key index eased 3.26 points lower to close the week at 1,641.81 after trading between an early high of 1,645.09 and low of 1,640.30. Losers edged gainers 388 to 381 on turnover of 2.65 billion shares worth RM1.57 billion.

Trading range for the FBM KLCI last week was 19.15 points, compared with 15.57 points in the previous week, after it recovered from Monday’s selloff to the lowest close in more than two years.

However, for the week, the FBM EMAS Index rose 0.41 per cent to 11,600.86 and the FBM Small Cap Index surged 3.25 per cent to 13,123.83, as small caps bounced back on renewed speculative interest in retail.

The 14-day Relative Strength Index (RSI) indicator turned lower for a weak reading of 37.72 following Friday’s decline, while the 14-week RSI levelled to a low reading of 35.68.

On the other hand, the daily Moving Average Convergence Divergence (MACD) trend indicator’s trigger line turned up to suggest easing bearish momentum, but the weekly MACD flashed a sell signal to indicate deterioration in trend momentum.

The –DI and +DI lines on the 14day Directional Movement Index (DMI) trend indicator stayed bearish with the ADX line staying above 25 to imply a downtrend.

Conclusion

While trend momentum on the FBM KLCI remains bearish due to last week’s selloff, easing selling pressure in the subsequent rebound implies that bearish momentum should dissipate this week.

Note that small-cap stocks are displaying good recovery upside following the sector index’s 3.25 per cent jump last week, with oil and gas stocks likely to shine further given the resilient global oil price amid rising civil war risk in Libya.

Optimism for a resolution in US-China trade talks and strong March US jobs growth should improve sentiment and reduce global growth worries.

Immediate index resistance will be from the mid Bollinger band now at 1,660, followed by the March 19 high of 1,694, and stronger hurdle from the 200day moving average level at 1,718. Key twin pivot supports are at last Monday’s low of 1,628 and December 2018 low of 1,626, while stronger supports are from the Nov 2016 low of 1,614 followed by the 1,600 psychological level.

While trend momentum on the FBM KLCI remains bearish due to last week’s selloff, easing selling pressure in the subsequent rebound implies that bearish momentum should dissipate this week.

The subject expressed above is based purely on technical analysis and opinions of the writer. It is not a solicitation to buy or sell.