Business

Saturday August 15, 2009

Market likely to drift sideways


REVIEW: Wall Street staged a rally the previous Friday, pushing the closely-watched Dow Jones Industrial Average up 113.81 points to 9,370.07 and the Nasdaq Composite Index 27.09 points firmer at 2,000.25 while the Standard & Poor’s 500-share Index hit a 10-month high of 1,010.48, as a fewer-than-expected employment data reinforced the view that the global economic slump may be already over.

In a knee-jerk reaction to sharply firmer US markets, Bursa Malaysia’s principal index, the FBM Kuala Lumpur Composite Index (FBM KLCI) raced to a high of 1,191.00 points shortly after the opening bell, aided by gains in the core blue-chip issues.

Unfortunately, institutional investors were not willing to chase stocks, simply because our market was already overbought and most regional bourses, other than Hong Kong and Japan, were little changed in directionless trade on consolidation after the recent rally.

Soon, the quality issues peaked out temporarily to trade range-bound, but mid-cap and cheaper-priced counters continued to enjoy retail participation amid playing catching up, thus keeping the market busy.

At the end of the regular session, the local bourse rose only a minor 3.12 points, or 0.263% to 1,188.00 in mixed note on Monday.

Given the lack of support from the big boys, Bursa Malaysia subsequently tripped into consolidation mode the next day, with a pullback in overnight Dow weighing on the local sentiment. Like the previous day, selling was very much confined around the heavyweights. Elsewhere, second and lower liners continued to shine on speculative plays and that was clearly reflected in the scoreboard.

Though the FBM KLCI retreated 1.72 points to 1,186.28, the overall breadth was positive, with winners outnumbering decliners by 477 to 275 on Tuesday.

Thereafter, the local bourse extended the correction process in the absence of buying incentives, with the key index dropping an extra 5.74 points, to 1,180.54 in mid-week, dampened by an easier overnight Wall Street and the dismal performance in Asian equities.

At this stage, market sentiment appeared weak and many people expected the local bourse to continue consolidating, but a quick and steep rebound in overnight Wall Street saved them from sinking deeper into red.

In the wake of renewed bargain hunting interest, the FBM KLCI recouped some 5.65 points to 1,186.19 on Thursday, tracking the positive offshore trend. And yesterday, the local bourse came off an intra-day peak of 1,196.46 to close up 2.38 points at 1,188.57 owing to profit-taking activity.

Statistics: On a Friday-to-Friday basis, the FBM KLCI gained 3.69 points, or 0.3% to 1,188.57 yesterday, against 1,184.88 a week ago.

Total turnover for the regular week increased marginally to 5.336 billion units, worth RM7.907bil, versus 4.806 billion shares valued at RM7.706bil done previously.

Technical indicators: The oscillator per cent K and the oscillator per cent D of the daily slow-stochastic momentum index were on the downtrend. It triggered a sell on Monday. After triggering a sell on Wednesday, the daily moving average convergence/divergence (MACD) indicator continued to linger below the daily signal line to stay bearish.

In stark contrast, the 14-day relative strength index retreated from a reading of 82 on Monday to the 66 points level in mid-week before ticking up slowly. Weekly measurements were positive, with the weekly slow-stochasic momentum index maintaining the buy call at the overbought area and the weekly MACD retaining the bullish note.

Outlook: Like a week ago, Bursa Malaysia was practically in consolidation despite the FBM KLCI establishing a new peak for this year during intra-week session.

Based on the daily bar chart, a market correction at current level is certainly necessary to avoid overheating, given the fact that the key index had recovered a total of 395.19 points from the ebb of the previous bear cycle and now lingering near the monster resistance territory. But with US economy levelling out and the news France and Germany enjoying a surprise return to economic growth in the second quarter adding optimism to the global recovery story, we reckon it is a matter of time the bulls eclipse the 1,200 points psychological barrier and start running again.

For now, it looks like the underlying tone of the market will not vary much from the present mode until a decisive breakout is sighted, which means limited movement on either side of the horizontal line this week.

Technically, analysis suggests Bursa Malaysia is likely to extend the sideways pattern in the immediate term, but certain quality stocks outside the FBM KLCI basket may stand out amid sporadic buying and rotational plays.

Support floors are maintained at 1,178-1,180 points, 1,165-1,170 points, 1,150 points and 1,140-1,142 points range. Beyond the 1,200 points line, resistance can be expected at 1,220 points, 1,240-1,250 points, 1,260 points, 1,278-1,280 points and the next, at 1,300-1,305 points band.

  • E-mail this story
  • Print this story