Business

Saturday October 24, 2009

Bulls maytake a breather

TREND ANALYSIS By K.M.LEE


REVIEW: US stocks fell the previous Friday, dropping 67.03 points to 9,995.91, as disappointing earnings from General Electric Co and Bank of America Corp triggered fresh fears that the road to economic recovery would be bumpy, prompting investors to book profit.

The results contrasted sharply with those of JP Morgan Chase & Co and Intel Corp earlier in the week, which breezed past Wall Street forecasts and helped the market to breach 10,000 points.

Elsewhere, weak consumer sentiment reading added to the gloom.

Given the dismal showing on Wall Street, equities in the Asia-Pacific region looked a bit shaky, opening the week mixed-to-lower in cautious mood.

A similar pattern was traced out on the domestic front. Despite starting out a shade above the flat line, Bursa Malaysia’s principal index, the FBM Kuala Lumpur Composite Index (FBM KLCI) quickly slipped into the negative territory, with most investors adopting the “wait-and-see” attitude.

The matching of trades were slow in initial deals, but it picked up steam later, as a turnaround in certain key regional bourses from an early losses on optimism about Beijing’s economic growth and expectations of better third-quarter earnings, encouraged local investors to indulge in bargain-hunting interest.

In brisk volume, gains in select core blue chips lifted the local market up 4.72 points to 1,261.49 on Monday, also the new peak for the year.

Buyers continued to dominate the floor the next day, with Wall Street hitting a 12-month high in overnight session, as an unexpected sterling corporate results spurred a bullish mood in financial issues. Resource-related issues also staged a rally amid rising commodity prices.

The bulls struck a fresh high for this year, hitting 1,270.08 during intra-day session before ending at 1,265.74, up an extra 4.25 points on Tuesday, led by gains in the core heavyweights.

On Wednesday, the local bourse extended its upward thrust, with the FBM KLCI establishing another new high in the morning session, also the sixth in a row before a bout of profit-taking activity emerged to cut short the party.

In the wake of light selling pressure, Bursa Malaysia reversed early advances to settle down 5.68 points to 1,260.06 in midweek.

Thereafter, the bulls took a short breather, easing 0.04 of a point to 1,260.02 on Thursday before bouncing back moderately to finish up 7.08 points to 1,267.10 amid gains in the core index-linked stocks yesterday.

Statistics: On a weekly basis, the FBM KLCI advanced 10.33 points, or 0.8% to 1,267.10 yesterday, compared with 1,256.77 at the close on Oct 16.

Total turnover for the regular week stood at 5.044 billion shares valued at RM6.428bil, versus 5.345 billion units worth RM6.176bil done in the previous week.

Technical indicators: The daily slow-stochastic momentum index had moved out of bullish territory after triggering a sell at the top in midweek.

In contrast, the past week saw the 14-day relative strength index pulling back from 89 to the 76-point level before ticking up again.

Meanwhile, the daily moving average convergence/divergence (MACD) histogram retained its bullish note, trending sharply above the daily trigger line.

Elsewhere, weekly indicators such as the weekly slow-stochastic momentum index back is showing bullish signals and the weekly MACD resuming an upward trend.

Outlook: Bursa Malaysia continued to scale on extended buying momentum, with the key barometer FBM KLCI establishing new peak on three occasions during the week, boosted largely by positive US earnings reports and the expectation that corporations at home may benefit from Budget 2010.

The underlying tone of the local market is no doubt bullish. But according to the daily chart, the bulls had covered quite a long distance over the past months and they now are approaching the pretty stiff resistance levels of 1,280 points, 1,300-1,305 point band and 1,332 points.

These are no ordinary hurdles and if the past track record is reliable, the market is unlikely to break through these barriers on the first attempt. In short, the bulls may pause for air soon, but there is no threat of Bursa Malaysia experiencing a steep correction just yet.

Technically, indicators remain positive, also overbought at the same time and this may give investors the excuse to lock in profits. If there is any incentives to buy, it would be the Budget 2010 announcement.

Support floors are envisaged at 1,240-1,250 points, 1,220 points, followed by the 50-day simple moving average of 1,206 points.

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