Business

Saturday August 29, 2009

Market likely to extend consolidation


REVIEW: Wall Street extended the upward thrust for the fourth straight day on strong follow-through buying momentum, which witnessed the Dow Jones Industrial Average jumping 155.91 points to 9,505.96, the Standard & Poor’s 500-share climbing 18.76 points to 1,026.13 and the Nasdaq Composite Index advancing 31.68 points to 2,020.90 the previous Friday.

All the three main US indices ended at their 2009 highs, boosted by a surprising rise in home sale and optimistic comments from Federal Reserve chief Ben Bernanke about the prospects for a recovery in the world’s largest economy.

A spike in global crude oil prices to a 10-month high of US$73.89 per barrel on speculation of a revival in demand, also got the market rolling.

Riding on the offshore strength, share prices on Bursa Malaysia started out the week on a steadier note, with the benchmark FBM Kuala Lumpur Composite Index (FBM KLCI) jumping 4.76 points or 0.41% to 1,168.55 in initial deals.

Blue-chips topped the winners list but business was somewhat slow, as many investors were not willing to chase stocks while the market continued to consolidate the recent massive rally.

Consequently, the local bourse drifted sideways to marginally higher to end at 1,174.49, also the day’s peak, up 10.70 points in thin volume on Monday.

The FBM KLCI’s closing at the day’s high was interpreted as positive theoretically and many people thought the market would come out of the recent rut on renewed buying momentum the next day.

But sadly, that was not the case, as a flat overnight Wall Street offered little lead to investors to indulge in nibbling. Instead, the local big boys took the excuse of the dismal performance of the regional peers to book profit.

Apparently, market sentiment in Asian exchanges turned sour, as Chinese stocks swooned in the wake of fresh concerns over economic outlook after Premier Wen Joaboa said China would maintain its stimulative policy because the economic recovery was far from being on solid ground but facing renewed difficulties.

In the absence of market-stimulating leads on the horizon, shares on Bursa Malaysia retreated on profit-taking activity, dragging the key index down 3.40 points to 1,171.09 on Tuesday.

Thereafter, the local bourse continued to consolidate but the FBM KLCI managed to claw back from an earlier losses on two occasions to settle up 1.47 points to 1,172.56 in mid-week and another 4.34 points to 1,176.90 on Thursday before reversing to finish down 2.63 points at 1,174.27 yesterday.

Statistics: On a weekly basis, the FBM KLCI climbed a sum of 10.48 points, or 0.9% to 1,174.27 yesterday, versus 1,163.79 the week before.

Total turnover for the week stood at 3.259 billion units valued at RM5.345bil, compared with 4.190 billion shares worth RM6.208bil done the previous week.

Technical indicators: The oscillator per cent K and the oscillator per cent D of the daily slow-stochastic momentum index were fast reaching the overbought territory. It flashed a short-term at the bottom on Aug 21.

Elsewhere, the 14-day relative strength index drifted sideways to marginally higher the past week to settle at 58 points yesterday.

In stark contrast, the daily moving average convergence/divergence (MACD) histogram sustained the negative expansion against the daily signal line to stay bearish. It triggered a sell on Aug 12.

Weekly indicators continued to deteriorate, with the weekly slow-stochastic momentum moving out of the bullish zones after issuing a sell a week ago, and the weekly MACD in danger of tripping below the weekly trigger line.

Outlook: Bursa Malaysia appeared still in consolidation phase although the principal index was able to chalk up modest gains the past week.

As all of us can see, daily volume has been shrinking over the past several days. While the bulls take a longer-than-expected breather and the market turning sluggish, pessimistic investors moved to the sidelines adopting the “wait-and-see” on suspicions the market may be in distribution mode after a strong run up.

Based on the daily chart, the prevailing trend remains bullish and it looks like the FBM KLCI is in the midst of constructing a concrete platform for the next rally. Perhaps, the reason why trading was dull and thin could be because many people were away on holidays during the school break, combined with the start of Ramadan.

Therefore, investors should not be overly worried but can consider accumulating more on dips.

Technically, the daily and weekly MACDs still are pointing at consolidation, probably sideways pattern until a bullish breakout is detected.

Support floor is maintained at the 1,150 points, followed by the 1,140-1,142 points band.

To the upside, the key index will encounter significant resistance at the recent peak of 1,196.46 and the next, at the 1,200 points psychological mark, of which a successful penetration will signal a resumption of the mending process.

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