Weak indicators suggest correction

REVIEW: In the absence of strong leads from the US, Bursa Malaysia got off to a subdued start to the week, with the FBM KLCI dropping 1.51 points to 1,706.17.

Blue chips struggled in early business as a cautious performance in the Asia-Pacific region and a softer ringgit against the greenback sent many investors running to look for cover.

However, the lull was short-lived, as institutional players emerged unexpectedly to seek value buys in mid-morning and helped push the main index into the positive territory.

Though there was a fresh bout of buying momentum in the market for the rest of the day, interest was evidently concentrated around the quality issues and certain second liners.

Elsewhere, the cheaper penny stocks were mostly lower on lack of support from retail investors. The mixed underlying tone of the market was apparent as despite the key index chalking up 4.9 points to 1,712.58 at the closing bell, winners and losers were almost equal, totalling 466 and 452 respectively on Monday.

There was still no lead from the US the next day, as overnight markets there were shuttered due to the Presidents Day holiday.

Turning to European markets, stocks gained marginally in mixed mood due to lingering concerns about the looming French election while investors fretted about the timing of interest rate hikes in the US.

Like the regional peers, the local bourse firmed and gains in the blue chips propelled the FBM KLCI to as high as 1,719.76 in early session, the best level in 10-months amid follow-through bargain hunting nibbling.

But with little catalyst on the horizon reminding investors to exercise caution in their trading approach, they simply were not willing to bid the market any higher, but selling into strength to lock in gains.

In the wake of a fresh bout of liquidation, the key index succumbed to tremendous stress to give up early advances to finish down 6.03 points to 1,706.55 on Tuesday.

Thereafter, despite the bulls on Wall Street bouncing back strongly, pushing the Dow to a fresh record level, underpinned by growing confidence Trump will soon unveil details of a major tax cut plan, investors at home were not convinced but adopted the “wait-and-see” attitute.

Consequently, Bursa Malaysia tripped into consolidation mode, with the key index fluctuating between an intra-day high and low of 1,709.10 and 1,704.42, a tight 4.68 points throughout, before closing up 1.53 points to 1,708.08 in mid-week.

While regional markets drifted lower the following day, the local market continued to see-saw, attempting to stay above water in the morning session but it was not successful, as increased selling in the afternoon eventually sent stocks into the red zones and losses in select blue chips dragged the FBM KLCI down 3.60 points to 1,704.48 on Thursday.

In another sluggish session, the local bourse lost an extra 6.13 points to 1,698.35 on follow-through profit-taking yesterday.

Statistics: Week-on-week basis, the major index declined 9.33 points, or 0.5% to 1,698.35 yesterday, compared with 1,707.68 on Feb 17.

Total turnover for the regular week amounted to 13.885 billion units worth RM12.598bil, against 11.341 billion shares valued at RM12.188bil done the prior week.

Outlook: Bursa Malaysia slipped into correction mode, with the FBM KLCI violating the immediate 14-day simple moving average line during intra-week trading, as investors opted to book gains after the recent rally.

From our observation, the overall market sentiment had deterioted slightly since Tuesday after the key index nearly carve out a bearish “key reversal” pattern.

Except for Wall Street, betting on tax cuts, less regulation and more spending on infrastructure from Trump to boost the US economy, which may aid the local bourse higher, other issue such as the Fed rising interest rate and political uncertainty in the euro zone, are not so favourable to equities at home.

On the other hand, the ringgit is little changed against the greenback and crude oil prices are not going anywhere just yet, as huge build-up in US crude stockpiles will undermine OPEC’s move to cut output. Hence, they are providing little help for shares.

Given the limited catalyst on the horizon, there is a high possibility the local bourse may sustain the consolidation mode this week while investors adopt a cautious approach.

In spite of that, many investors are still eyeing a major breakout of the 1,730 points and we are not discounting that possibility, but we put it this way.

As long as the key index stays above the 1,700 points, the bulls have a very good chance of a breakthrough, but no hope, if they fail to stay afloat this psychological level.

Technically, the sell signal on the daily moving average convergence/divergence histogram and the “toppish” pictogram on the weekly slow-stochastic momentum index suggest the local bourse may fill the minor “run away” gap of 1,690.80 points-1,695.37 points on extended correction this week before they show any sign of ticking up again.

Initial support is seen at 1,680 points the next lower floor is maintained at 1,640 points.