Business

Saturday March 7, 2009

The bears appear in control All eyes on the mini-budget to help boost the market

Trend Analysis by K.M. Lee


REVIEW: Bursa Malaysia started out the month of March on a weak platform, with the Composite Index (CI) shedding 0.96 of a point to 889.71 on extended consolidation following a sharp fall in overnight Wall Street.

The Dow Jones Industrial Average slumped 119.15 points to 7,062.93 the previous Friday, pulled by financial issues after the US government said it would take a large stake in Citigroup’s common shares, fanning fears it will increase its role in other major banks.

Also, the dismal performance of major Asian markets, namely Sydney, Seoul, Tokyo, Singapore and Hong Kong, plunging between 2.8% to 4.2% in heavy liquidation amid fresh fears about the US and Europe financial systems continued to weigh on the local bourse.

Against the negative backdrop and renewed jitters from abroad, institutional investors fled to the sidelines, resulting in the key index falling some 14.11 points to 876.56 in lacklustre session on Monday.

Overnight Wall Street did not get any better the following day, but worsen, with the Dow diving an additional 299.64 points to a 12-year low of 6.763.29 amid grim global financial as well as economic despair.

As usual, major regional indices traded significantly lower in initial deals, tracking the downward spiral of the US peers, but as they were looking helpless and in danger of breaking down from the pivotal support line, institutional and pension funds came to the rescue and save them from falling off the cliff.

Apparently, a similar trend was traced out here, which witnessed the CI gaping down 9.35 points at 867.21 and quickly eased to an intra-day low of 863.76 before bouncing off slightly to trade within a range. At the end of Tuesday’s session, the local bourse still declined a total of 7.82 points to 868.74 in sluggish mode.

Subsequently, overnight Dow sagged an extra 37.27 points to 6,726.02, as the health of the US banking sector continued to cloud investors sentiment. Unlike the Asian markets, which experienced great volatility, swinging from a steep fall in the morning due to persistent losses in Wall Street to close sharply steadier on optimism Beijing may announce a new package to stimulate her economy, which would helped the entire region eventually, trading on the domestic front was relatively calm, with the CI down 1.81 points to 866.93 in mixed mood on Wednesday.

Thereafter, Bursa Malaysia channelled sideways on bargain-hunting alternated with mild selling, closing up 2.31 points to 869.24 on Thursday. And yesterday, the CI resumed the downward momentum, ending down 11.02 points to 858.22, depressed by the poor leads from abroad.

Statistics: The principal index hit a high of 889.97 on Monday and touched a low of 857.22 yesterday, generating a weekly range of 32.75 points.

For the week, the CI lost a sum of 32.45 points to settle at 858.22, against 890.67 the previous Friday. Total turnover for the regular week stood at 1.787 billion shares worth RM2.999bil, versus 1.720 billion units valued at RM2.891bil traded a week ago.

Technical indicators: The oscillator per cent K and the oscillator per cent D of the daily slow-stochastic momentum index were fast reaching the oversold territory. It triggered a sell signal on Monday after showing a tentative topping pictogram at the 65% level late last month.

The 14-day relative strength index weakened considerably during the week, easing from a reading of 47 points to the oversold territory. After a brief sideways trending, the daily moving average convergence/divergence (MACD) histogram resumed the downward expansion against the daily signal line to stay bearish. It flashed a sell on Feb 23.

The weekly indicators were weakening, with the weekly slow-stochastic momentum index calling a sell and the upward momentum of the weekly MACD dawdling.

Outlook: Bursa Malaysia succumbed to a fresh bout of liquidation to descend to 2½ lows of 857.22, brought about by external uncertainty during the week.

Based on the weekly bar chart, the key index had fallen back to below the 21-week SMA, indicating the bears are in control.

Theoretically, the local bourse will be under tremendous pressure to retreat but losses over the past week were not so severe compared with other exchanges, as most investors were reluctant to sell down ahead of the release of the mini budget, which was designed to revive the domestic economy.

For now, it is unclear how investors will react to it, but what we are quite certain is, the stimulus package must have the people’s confidence. Otherwise, Bursa Malaysia may continue to drift lower on extended correction mode, with the key index at great risk of a major breakdown going forward.

Technically, the oversold condition of the short-term indicators offer investors hope of a rebound, but because the daily MACD is negative and the weekly MACD weakening, a range-bound pattern is more likely this week.

Initial support is seen at the 846.47 points, followed by 835 points, 821.75 points and the 800-802.17 points range. Resistance can be expected at the 870-872-point band, 890 points, 900 points psychological level, 910 points, and the next at 936.63 points.


For latest Bursa Malaysia indices, charts and other information click here

  • E-mail this story
  • Print this story