Sell-off confirms negative trend
MUDAJAYA Group Bhd (code: 5085) has been moving in a sideways channel near alltime lows over the last 3.5 months with few fresh catalysts changing the investment outlook.
The stock’s fortunes have faded in recent months with its share price wallowing in the doldrums since falling of a peak of RM1.67 on May 23, 2017. At current trading levels (34 sen at Friday’s close), it remains closer to its historical low of 26 sen seen in 2005.
Friday’s pick up in momentum saw the share price gapping up at the opening bell but it remained well within the consolidation channel.
Barring a positive breach of the 36 sen resistance level that has held the share price in place in recent months, the outlook of the stock remains unchanged. A break out however could happen in the coming sessions given the pick-up in momentum, should buying interest be sustained.
The 200-day simple moving average, which has remained intact overhead since November 2017, has descended to 40 sen, which puts it within striking range of the share price.Sustained investor interest and spike in momentum would put Mudajaya clear of the immediate 36 sen resistance to challenge the 200-day SMA for a return to a more bullish outlook.
At present, the technical indicators are showing improvement, which bodes well for the build-up of a positive trend.
The slow-stochastic momentum index has moved up to 41 points, as it quickly picked up from below the oversold line.
The 14-day relative strength index has risen to 64 points, suggesting growing momentum.
The daily moving average convergence/ divergence line remains resting on the signal line and zero line, as it remains committed to a horizontal movement.
The immediate support for the stock lies at 32 sen, where the moving averages are seen to converge, with 27.5 sen, representing the lower end of the current trading channel, as further support. A nearby buffer can be seen at the stock’s historical low of 26 sen.
The comments above do not represent a recommendation to buy or sell. REVIEW: The US Federal Reserve’s dovish stance and more accommodative outlook for 2019 helped to validate a rare positive catalyst for the investment landscape.
As Asia opened for business on Thursday, equity markets reacted positively to the news that the central bank did not foresee any rate hikes for the year. The news was bullish for stocks as the Fed was more dovish than expected.
The Fed was expected to reinforce a dovish stance and much of the enthusiasm was seen on Bursa Malaysia at the week’s open, when the FBM KLCI surged 10.4 points on Monday.
But that optimism was quickly curbed by caution in the markets as investors locked in profits over the next two days, shaving nearly seven points off the index and leaving it locked in a sideways channel
On Thursday, the FBM KLCI jumped five points to an intra-day high of 1,689.24 in tandem with a regional rally. But unexpectedly, the market saw a downturn from a broad-based selloff about 90 minutes leading into midday break.
Led by losses in the banking sector, the market lost momentum and ended the morning session 17.7 points in the red.
Over the broader index, stocks fell in unison as gains were quickly locked in by traders who had grown accustomed to the volatility of the past year.
By market close, the FBM KLCI had lost over 20 points to rest at a lower support of 1,663.66 points.
On Friday, investors were hoping for a rebound, which came, but ended abruptly after the first 30 minutes of trading.
The FBM KLCI proceeded to erase gains and fell further into the red in yet another broad-based decline. In a final minutes however the index rallied to end the week three points higher at 1,666.66.
A possible explanation for the price action of the local market was that the Fed decision was seen as the last positive catalyst to boost sentiment over the foreseeable future.
Once realised, profit-taking was set to take over. From a technical standpoint, the bearish channel on the index had grown distinct.
Hanging like a shroud over investors’ minds and limiting gains was concerns over whether the global economy was likely to get better – and given US President Donald Trump’ recent comments, traders were left feeling anxious.
On the same day as the Fed decision, Trump announced that he might be leaving the trade tariffs on China for a “substantial period” even in the event of a trade deal, in order to ensure that the Beijing complied with the terms of the agreement.
While Trump had time and again attempted to talk up the market with positive vibes over the progress of the trade talks, he once again showed his volatile nature by dumping cold water on a possible smooth resolution.
In contrast to Bursa Malaysia, China’s equity market shrugged off the broadside. Despite a slightly weaker start on Thursday due to Trump’s comments, the Shanghai Composite Index (SCI) rallied to a positive close.
The same was seen on Friday as the SCI put in a mildly positive performance. Over the week, the index rose 2.7% to indicate the continuation of a rally.
A potential meeting to end the trade conflict could come as soon as April, although reports also suggest that it may be delayed to June.
While the negotiations have entered its final stages, the schedule has been prolonged as Washington pushes for a framework that will enforce compliance and punish China for veering from the deal.
Meanwhile, the ringgit made advances against the weakening greenback. By Friday’s end, the local currency had grown 0.8% against the US dollar to 4.055.
Statistics: The major index ended the week 13.88 points or 0.8% lower over the previous week, at 1,666.66.
Total turnover for the trading week stood at 14.46 billion shares amounting to RM9.79bil compared with 19 billion shares worth RM13.22bil over the previous week.
Outlook: Following Thursday’s 1% fall, a clearer short-term negative trend has appeared on the daily price chart.
The FBM KLCI rejected the 50-day simple moving average and is now at a significant distance of about 30 points under the line, which makes a return to a positive outlook all the more challenging.
The retreat also saw the index return below the 1,680 mark.
The index breached the tentative support of 1,663 during Thursday’s retreat, and at Friday’s intra-day low touched yet another tentative support of 1,657, en route to 1,652.
A continued fall over the coming week would open the way towards the lower support of 1,652. The index is expected to resume trading within the 1,652 and 1,680 range.
The technical indicators are looking negative with the slow-stochastic and relative strength index both showing strong downwards momentum as they head towards oversold conditions.
The daily moving average convergence/ divergence line has crossed below the signal line to issue a “sell” call and confirm a growing negative trend.