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REVIEW: The domestic market’s rebound on Budget day was extended over the past week, with successive gains leading to a formation of a short-term positive trend.

Over the week, the FBM KLCI made a rare breach of the 14- and 21-day simple moving averages (SMA), with momentum building towards the 50-day SMA.

Just as the market has been weighed down by a combination of domestic and external pressures over the past 1½ years, some positive news offered by both local and foreign policymakers allowed for some recovery from what had been a traumatic start to October.

The partial trade deal between the US and China that was struck at the conclusion of their recent negotiations helped to lift the dark cloud that had been hovering over the global economy.

While uncertainties over the depth and scope of the deal remained unanswered, the slight progress observed by investors was enough to trigger a rally in world markets.

The tabling of Budget 2020 had also served to offer some relief to domestic investors, but the upsides were mostly isolated to stocks and sectors.

With a budget that was seen to be slightly expansionary and positive for certain sector plays – tech and property among them – a thematic bullishness also helped to buoy investor sentiment in the local market.

The FBM KLCI picked up on the upturn in sentiment and rose 10.75 points on Monday, extending on the notable gains seen over the previous Friday.

After two successive days of notable gains, the market was bound to see some profit-taking.

This was also facilitated by China snapping its own advance over five successive sessions as its factory gate prices in September tumbled at the fastest pace in three years.

However, the pullback on Bursa Malaysia was mild with the FBM KLCI showing a 1.36point deficit, reinforcing the view that the bulls had returned to the market.

Tuesday marked the middle of October, which ushered in the unofficial start to the US corporate earnings season.

With corporate earnings growth muted over recent quarters, investors were looking towards the onset of the US for leads as to whether growth can be reignited.

It proved to be a strong start as sector bellwethers pulled up the Dow Jones Industrial Average and reversed the index’s negative performance for the month so far.

The FBM KLCI put in its second strong rally of the week on Wednesday, rising 8.67 points to 1,574.90.

Over Thursday, the market struggled to gain traction and spent the majority of the day in the red. In the closing minutes of trade, a spike in buying activity erased most of the losses, culminating in a 0.4-point deficit at 1,574.50.

Chinese GDP data in the third quarter would prove to be disappointing as 6% yearon-year growth represented its slowest in over 27 years. Regional sentiment was dampened by the result despite UK Prime Minister Boris Johnson’s success in hammering out a long-awaited Brexit deal.

The FBM KLCI continued to see some slight profit-taking on Friday, but semiconductor plays ended the week on a bullish note.

Analysts remained overweight on the tech sector as the outlook on automotive sales continued to improve. Beneficiaries, including stocks such as MPI and KESM, jumped, continuing the positive momentum over recent sessions.

Statistics: The major index ended the week 14.31 points or 0.9% higher over the previous week, at 1,571.15.

Total turnover for the trading week stood at 13.96 billion shares amounting to Rm9.92bil compared with 10.95 billion shares worth Rm7.85bil over the previous week.

Outlook: Friday’s negative performance saw the FBM KLCI attempting to return from overbought conditions to neutral ground, suggesting a halt to the rally while profit-taking takes over.

The index tested the support at 1,570, and while it remains intact, looks unlikely to hold given the downturn in momentum.

However, upon reaching the lower support of 1,550, the index could take on a sideways direction as investors await the next catalyst to direct trading.

Based on the daily price chart, the dominant trend and outlook on the share remains bearish as the 50-day simple moving average (SMA) continues to dive deeper below the longer-term 100- and 200-day SMAS.

Should the index rise past the 50-day SMA, which is currently resting at 1,590 points, it would mark the return of bullish sentiment. The last time the index crossed higher than the 50-day SMA was on May 30 this year, at the start of a strong recovery period.

Resistance levels can be seen at 1,600 and 1,625 while support levels for the share are at 1,550 and 1,500.

The slow-stochastic is close to a negative crossing of the overbought line, which would signal the start of a consolidation period.

However, the daily moving average convergence/divergence line remains higher than the signal line. A breakdown of the share price below the support would see the MACD crossing below the signal line in a “sell” signal.