Business

Saturday May 16, 2009

Possible sideways correction

TREND ANALYSIS By K.M.LEE


While blue chips consolidate, some cheaper stocks may enjoy speculative plays.

REVIEW: Shares on Bursa Malaysia traded firmer in early deals, with the benchmark Composite Index (CI) leaping 6.20 points to 1,032.98 amid continuous bargain hunting nibbling, spurred by the sharply steadier US markets overnight.

The Dow Jones Industrial Average advanced 164.80 points to 8,574.65 the previous Friday, as stress test results and reassuring jobs data fuelled hopes the worst was over for US banks and the global economy.

A smaller-than-expected jobs cut in April added to the upbeat note and a spike in light sweet crude on the New York Mercantile Exchange gave investors a reason to buy energy-related issues.

In spite of the positive setting from the US, Asian markets were however traded mixed, with major indices criss-crossing the flat line, as some caution on China’s economic recovery held back investors enthusiasm.

Tracking the regional peers, the local bourse later turned sideways, lingering mostly in the green zones before tripping into the negative side in the afternoon on weakness in certain blue chips. Elsewhere, second and lower liners attracted significant interest amid speculative plays, reflecting a two-tier market.

Though the CI settled down 1.28 points to 1,025.50 at the end of Monday’s session, the overall market breadth appeared encouraging, with 448 gainers beating 362 losers.

Asian stock exchanges traded in a mixed note once again the next day, consolidating the recent steep advance, as grim macro data from China, such as the sharper-than-expected fall in exports in April, dampened hopes of a quick recovery of the world economy.

Given the lack of fresh market-stimulating leads on the horizon, Bursa Malaysia extended the range-bound correction, fluctuating between an intra-day high and low of 1,023.73 and 1,013.36 respectively throughout.

In lacklustre trade, the CI suffered only a minor setback, easing 2.48 points to 1,023.02 on Tuesday and in another tight trading session, the key index moved in and out of the positive territory before ending almost flat, shedding 0.18 of a point to 1,022.84 in mid-week.

Thereafter, the local bourse widened losses on greater liquidation pressure in the wake of fresh worries about the health of the US economy, dropping 10.85 points to 1,011.99 on Thursday before light bargain hunting activity came to the rescue, helping the CI to rebound 2.22 points to 1,014.21 yesterday, snapping the four-day losing streak.

Statistics: For the week ended yesterday, the key index finished at 1,014.21, down 12.57 points, or 1.2% against 1,026.78 the previous Friday.

Weekly turnover stood at 13.984 billion units worth RM9.677bil, versus 12.765 billion shares valued at RM9.870bil 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 on the downtrend. They slipped below the 80% bullish line on Monday to confirm the sell signal issued on May 7.

Likewise, the 14-day relative strength index weakened significantly the past week, retracing from a reading of 81 to the 64 points level.

Meanwhile, the daily moving average convergence/divergence (MACD) indicator had tripped under the daily signal line to trigger a sell on Thursday. Weekly measurements were waning, with the weekly slow-stochastic momentum index in danger of moving out of the bullish territory and the upward pace of the weekly MACD slowing.

Outlook: Bursa Malaysia crept into correction, with the bellwether CI generally range-bound in huge turnover the past week. Many people might think high trading volume is good for the market, but looking back the past precedence revealed it is not always so, which witnessed many previous bull rallies climaxing when trading volume was at its best.

Based on the daily chart, the key index achieved a high of 1,037.81 on May 5 on volume of 3.358 billion shares. A total of 3.255 billion units was traded the following day and it ballooned to 3.850 billion shares on Monday. On both occasions, the CI failed to scale new peak and it still is unsuccessful until today while volume stays robust.

Theoretically, this is not a good sign, as it depicts distribution at work, which could lead to the market peaking out later. For now, there are no worries, as the prevailing trend still is constructive, but investors should exercise extra care in their trading approach until a breakout is detected.

Technically, indicators are pointing to more consolidation, probably within a modest range. While blue-chips may correct in the short-term, some second and third liners are likely to enjoy speculative plays.

Initial support is pegged at the 14-day simple moving average (SMA) of 1,007 points. The next lower floor is seen at the 21-day SMA of 995, of which a clear violation could lead to a longer consolidation, if not a severe downward correction. To the upside, resistance is maintained at 1,040-1,042 points, 1,064-1,070 points and the next at 1,090-1,100 points band.

  • E-mail this story
  • Print this story