Business

Saturday November 7, 2009

Bulls likely to scale higher

TREND ANALYSIS By K.M.LEE


REVIEW: Overnight Wall Street suffered its worst slide since July the previous Friday, pulling the Dow down a steep 249.85-point to 9,712.73 in the wake of fresh worries that the economic recovery was not robust enough to sustain a seven-month stock rally, while finance-related issues sank on concerns about Citigroup’s balance sheet.

The broad-based sell-off in US equities sent a new round of jitters across the globe, prompting market players, especially foreign investors to place out pre-opening sell orders, which witnessed Asian stock exchanges dropping more than one per cent on liquidation pressure at the start of the week.

On the domestic front, Bursa Malaysia, which already tripped into correction mode the previous week, was not spared, with the benchmark FBM Kuala Lumpur Composite Index (FBM KLCI) slumping 5.06 points, or 0.41% to 1,238.17 in initial deals.

Very quickly, it sagged to a low of 1,233.45 but fortunately, a reversal in Shanghai stocks later in the day, boosted by renewed optimism about the Chinese economy after data showed the manufacturing sector gaining strength, encouraged the local investors to come out to seek value buys and that has helped the key index bouncing off the intra-day bottom. At the end of the session, Bursa Malaysia suffered only a minor setback, easing 1.47 points to 1,241.76 on Monday.

A day after the dive in the US, the Dow recovered some 76.71 points to 9,789.44 on positive economic data but trading in the Asia-Pacific region, with the exception of China, was very much muted, as a warning from a Federal Reserve official about banks loan losses dampened sentiment.

In the absence of clear direction from abroad, the local bourse turned sideways, with the key index flirting between a tight five-point range throughout, mostly in the plus territory before ending mixed at 1,242.32, up 0.56 of a point on Tuesday.

Come Wednesday, the local market took an unexpected swing for the better on renewed buying interest, taking cues from steadier regional peers amid gains in the resource-related issues, spurred by an extended rally in the soft and hard commodity prices.

Business was robust and advances led by the blue chips propelled the FBM KLCI up 11.52 points to 1,253.84.

Thereafter, profit-taking activity kicked in, but the key index managed to eke out a small positive note, gaining 0.12 of a point to 1,253.96 on Thursday due to a last minute support in select blue chips. And yesterday, Bursa Malaysia extended the upward thrust, rising 6.80 points to 1,260.76 in active volume, buoyed by higher overseas markets amid optimism about the global recovery.

Statistics: Week-on-week basis, the FBM KLCI surged 17.53 points, or 1.4% to 1,260.76 yesterday, compared with 1,243.23 at the close on Oct 30.

Total turnover for the regular week amounted to 6.577 billion shares valued at RM6.715bil, versus 4.585 billion units worth RM5.979bil traded the previous week.

Technical indicators: After triggering a short-term buy at the neutral zone on Monday, the oscillator per cent K and the oscillator per cent D of the daily slow-stochastic momentum index extended the upward momentum to the 97% and 77% respectively yesterday.

Though the daily moving average convergence/divergence histogram retained the sell call, the downward pressure had paused. It flashed a sell on Oct 28. The past week saw the 14-day relative strength index improving significantly from a reading of 40 on Monday to the 66 points level yesterday.

Weekly indicators were little changed, with the weekly slow-stochastic momentum index maintaining the unconfirmed sell signal and the weekly MACD in great danger of going under the weekly signal line.

Outlook: Bursa Malaysia pulled back from a near 17-month high of 1,270.44 on Oct 21 to a low of 1,233.45 on Monday amid extended correction before bouncing off in the wake of fresh bargain hunting interest.

Based on the daily bar chart, the key index had penetrated the short-term descending line in mid-week and it is now trading above all the moving averages on our radar screen, signifying the recent correction process has ended.

With the latest macroeconomic data from the US pointing the world’s largest economy on the mending path and rising trading volumes on the home front suggesting the underlying tone of the market is solid, there is a high possibility the bulls may scale higher in the immediate term.

Technically speaking, indicators are painting a mixed landscape, but they are likely to improve in the days ahead, given the growing investors’ confidence and optimism.

Strong overhead resistance barriers remain at 1,280 points, 1,300-1,305-point band, followed by the 1,332 points.

Initial support is seen at the recent lows of 1,233.45, followed by the important 50-day simple moving average, now resting approximately at 1,220 and still rising.

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