Trading sentiment may improve this week
THE benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) was stuck in range-bound trade last week, as profit-taking amid dwindling trading liquidity ahead of the expiry of the loan moratorium was offset by gains in key rubber glove makers due to virus resurgence fears. Domestic political woes also cast a dark cloud over the market.
Week-on-week, the FBM KLCI added 2.51 points, or 0.17 per cent, to 1,509.14 as gains on Hartalega (+RM2.84) and Top Glove (+82 sen) overcame falls in Petronas Dagangan (-RM1.40), Public Bank (-50 sen), Axiata (-18 sen) and Maybank (-13 sen). Average daily traded volume and value last week dwindled to 6.62 billion shares worth RM4.06 billion compared with 8.2 billion shares and RM5.8 billion the previous week, as trading momentum in small caps, ACE Market and penny stocks slowed considerably due to profit-taking and reduced retail commitments.
Even though a relief rally is expected in the immediate term, it could evaporate later, led by foreign selling, due to potential election uncertainty, both locally and in the US. As indicated last week, defensive sectors like healthcare, gloves and utilities are likely to witness sustained interest as investors seek refuge from market uncertainties, while construction and “sin” sectors such as gaming and brewery could face increased selling pressure.
Politics aside, Malaysia’s trade numbers for August and manufacturing PMI for September will be revealed this week. Both numbers are expected to show sustained month-on-month improvements, although year-onyear data remains weak. Similarly, this week’s China PMI and the US ISM and non-farm payroll data for September are likely to show improvement but the worsening rivalry between both countries is expected to cast a shadow on any sign of recovery.
Technical outlook
Trading range for the benchmark index last week shrank further to 24.83 points, compared with the 37.95-point range the previous week, as blue-chip heavyweights remained in narrow sideways range-trading mode. The FBM EMAS Index edged 3.19 points up to 10,840.81, while the FBM Small Cap Index declined 316.80 p oints to 12,876.60.
On technical momentum, the daily slow stochastics on the FBM KLCI hooked back up in the neutral region following the lateweek recovery, but the weekly indicator extended its decline towards the lower neutral zone. The 14-day Relative Strength Index (RSI) indicator also hooked up due to last week’s late rebound, while the 14-week RSI levelled off on easing downwards momentum.
As for trend indicators, the daily Moving Average Convergence Divergence (MACD) signal line showed tentative recovery, but the bearish position on the weekly MACD indicator persisted following the recent sell signal. On the 14-day Directional Movement Index (DMI) trend indicator, the +DI and -DI lines contracted on a declining ADX line, suggesting a shift towards sideways trend.
Conclusion
Recent bearish trend and momentum indicator signals on the FBM KLCI have reduced somewhat following last week’s profittaking consolidation, with mild hook ups on short-term momentum indicators pointing to good rebound potential. Moreover, the strong rebound on Wall Street on Friday and easing of domestic political uncertainties following the victory of Gabungan Rakyat Sabah in the Sabah election should spill over to improve trading sentiment this week.
On the index, immediate upside hurdles are at the 30-day and 50-day moving averages at 1,531 and 1,553, respectively. Key support to sustain uptrend remains the 200-day moving average now at 1,502, with next crucial supports from the recent low of 1,474, the 38.2 per cent FR of the 1,207 to 1,618 upswing at 1,461, and then 1,450.
On stock picks, oil and gas and property-related stocks such as Bumi Armada, Hibiscus Petroleum, Wah Seong, MRCB and UEM Sunrise remain in base building mode pending further improvement in sentiment before bargain hunters return for economic recovery play.
The subject expressed above is based purely on technical analysis and opinions of the writer. It is not a solicitation to buy or sell.