Business

Saturday October 31, 2009

No cause for worry

TREND ANALYSIS By K.M.LEE


REVIEW: Despite opening 0.33 of a point firmer to 1,267.43, Bursa Malaysia’s principal indicator, the FBM Kuala Lumpur Composite Index (FBM KLCI) quickly slipped below the flat line, as investors chose to book profits in the absence of fresh market-stimulating news on the horizon.

The overall sentiment appeared weak, dampened by a steep pullback in overnight Wall Street, which saw the closely-followed Dow Jones Industrial Average losing 109.13 points to 9,972.18 and sagging crude oil prices.

The volatile performance in Asian equities in early deals added to the gloom. Though they managed to bounced back later to settle marginally steadier at the end of the day, the local investors were simply not convinced while the bulls already decided to take a breather.

In lacklustre trade, the local bourse drifted gradually throughout to finish at the day’s low of 1,259.92, shedding 7.18 points on Monday.

The next day, overnight Wall Street reversed early gains to close sharply easier for the second straight day in choppy style, pulling the Dow down another 104.22 points to 9,867.96, as US investors dumped home builders and financials on fears home buyer tax credit would be phase out soon.

Commodity-related issues also succumbed to a bout of selling spree while crude oil prices extended the downward trend from their one-year peak of US$82 a barrel.

Surprisingly, unlike the regional peers, which took a beating on liquidation pressure, a last minute push in select heavyweights helped lift the FBM KLCI to finish in the positive territory, up 0.38 point to 1,260.30.

However, market breadth was not inspiring at all, with the scoreboard showing decliners thumping advancers by 404 to 264 on Tuesday.

Thereafter, profit taking and liquidation activities continued to dominate the floor, tracking the poor offshore trend, as weaker-than-expected economic data in the US revived worries about the pace of the global economic recovery.

With most investors wobbling or staying on the sidelines, the local bourse resumed the correction process, dropping 11.25 points to 1,249.05 in mid-week and an extra 7.30 points to 1,241.75 on Thursday before turning sideways to marginally higher amid bargain-hunting nibbling, rising 1.48 points to 1,243.23 yesterday, aided by a firmer overseas markets.

Statistics: For the week, the FBM KLCI declined 23.87 points, or 1.9% to 1,243.23 yesterday, versus 1,267.10 at the close on Oct 23.

The past five days saw some 4.585 billion units worth RM5.979bil were matched, against 5.044 billion shares valued at RM6.428bil done the previous week.

Technical indicators: The oscillator per cent K and the oscillator per cent D of the daily slow-stochastic momentum index continued to slide after flashing a sell on Oct 21.

Despite nearing the oversold area, it gave no sign of a turning around just yet.

Elsewhere, the 14-day relative strength index weakened significantly over the past several days, retracing from a reading of 67 on Monday to the 35 points level on Thursday before ticking up marginally yesterday.

After triggering a sell in mid-week, the daily moving average convergence/divergence (MACD) histogram sustained the downward expansion against the daily signal line to stay bearish.

The weekly slow-stochastic momentum index had issued a sell at the top, but it could not be confirmed for now.

Meanwhile, the weekly MACD appeared in danger of going below the weekly trigger line.

Outlook: Bursa Malaysia slipped into correction mode, with the key index drifting lower from a near 17-month peak of 1,270.44 on Oct 21 to a low of 1,236.20 during the week, taking cues from the gloomy mood in world equities, which slid in a sea of red.

Nevertheless, it managed to stabilise yesterday, with investors taking heart from the US returning to economic growth, which gave reassurance on the recovery’s staying power.

It looks like the local bourse is tuning in to the offshore trend for now. Hence the immediate direction will very much depend on how these markets perform going forward.

Based on the daily bar chart, the lacklustre performance of the local bourse in the past week should not be a cause of worry while the market undergoes a typical correction phase after the recent run, simply because the prevailing trend remains positive. It will remain so, as long as the key index maintains the posture above the important 50-day simple moving average, now resting at approximately 1,214 and still advancing.

Technically, the weakening sign on the weekly MACD, the tentative sell signal on the weekly slow-stochastic momentum index and the negative expansion of the weekly MACD against the weekly trigger line suggest Bursa Malaysia is likely to extend the correction process, but I reckon it will be more of a range-bound consolidation this week.

Stiff resistance barriers are maintained at 1,280 points, 1,300-1,305-point band, followed by 1,332 points.

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