Business

Saturday August 8, 2009

Tough nut to crack

TREND ANALYSIS By K.M.LEE


REVIEW: Crude oil rose US$2.51 to US$69.45 a barrel the previous Friday while the US dollar slid to its lowest for the year after data indicated the world’s largest economy contracted less than expected in the second quarter, boosting risk appetite.

But the mood on Wall Street was near breakeven, with the Dow Jones Industrial Average rising a small 17.15 points at 9,171.61 in cautious trade, as a government report on gross domestic product showed that consumers reined in spending, boded ill for hopes of a speedy global recovery.

Given the mixed batch of US data, Asian stocks had a nervous start to the week. Though most of them managed to claw back to the positive side in late trade, share prices on Bursa Malaysia tracked the easier performance of Japan’s Nikkei-225 Average to stay in the negative territory on consolidation.

Nevertheless, the underlying tone of the broader market was pretty firm. While core blue chips succumbed to light profit-taking selling pressure, the cheaper issues traded higher on retail participation, thus cushioning the downside.

At the end of the day, the FBM Kuala Lumpur Composite Index (KLCI) shed only a minor 3.59 points to 1,171.31 in mixed note on Monday.

Then, overnight Wall Street staged a rally on renewed buying momentum, with the Dow jumping 114.95 points to 9,286.56 and the S&P 500 Index climbing above the 1,000 points psychological mark for the first time in nine months, as the latest data on the manufacturing sector underscored optimism that the US economy was indeed recovering.

Against the bullish setting from abroad, the local market took a swing for the better the next day, which saw the key index racing to a 13-month high of 1,181.93 in early business.

But unfortunately, as Asian markets later turned sluggish in the wake of apparent profit-taking activity, the local investors opted to book gains and because of that, the FBM KLCI pared advances to end at 1,179.88, up 8.57 points on Tuesday.

Subsequently, Bursa Malaysia took the cue from the directionless regional peers to move sideways, with profit-taking activity alternating with bargain-hunting interest dominating the floor.

In lacklustre trade, the FBM KLCI reversed from the year’s peak of 1,185.38 to close down 0.39 of a point to 1,179.49 in mid-week. Thereafter, it rebounded on bargain-hunting nibbling, up 4.48 points to 1,183.97 on Thursday and eked out a small gain of 0.91 point to 1,184.88 yesterday.

Statistics: For the week, the FBM KLCI advanced a sum of 9.98 points, or 0.8% to end at 1,184.88 yesterday, versus 1,174.90 previously.

Weekly turnover tightened slightly to 4,806 billion shares valued at RM7.706bil, compared with 5,457 billion units worth RM8.236bil traded a week ago.

Technical indicators: The oscillator per cent K and the oscillator per cent D of the daily slow-stochastic momentum index scaled deeper into the overbought territory during the week. It triggered a short-term buy at the 65% level on Monday.

In stark contrast, the 14-day relative strength index was generally sideways the past seven days, flirting around the 70-80 point band.

Although the daily moving average convergence/divergence (MACD) histogram was still holding above the daily trigger line to retain the buy mode, it had indicated a tentative topping out pictogram.

Elsewhere, the weekly slow-stochastic momentum had carved an unconfirmed peaking out sign at the overbought area despite the weekly MACD continuing to climb higher against the weekly signal line.

Outlook: Bursa Malaysia was virtually in consolidation mode, with the upward thrust decelerating significantly even though the strength of offshore exchanges occasionally gave the market a spurt and pushed the FBM KLCI to the year’s high during intra-week session.

Tracking back the distant past revealed the benchmark FBM KLCI had failed twice around the 1,200 points barrier previously. The first malfunction was spotted on Sept 22, 1994 at 1,194.48.

The second futile attempt was sighted on May 2, 1996 at 1,193.34 and both followed by a steep correction phase.

Clearly, the monster resistance has proven to be a tough nut to crack. If history is a reliable and trustworthy guidance, then the main index would most probably be facing some degree of difficulty at that level again.

From here, the trend ahead is quite straightforward actually. In the case of a breakthrough, it may pave the way for a full recovery in the longer period. Otherwise, the bulls are likely to pause temporarily for air after a massive rally the past several months.

Technically, the growing overbought condition suggests consolidation, unless there is a substantial increase in trading volumes going forward.

Initial support is seen at 1,178-1,180 points. The lower floors are resting at 1,165-1,170 points range, 1,150 points, and 1,140-1,142 points.

Beyond the 1,200 points level, the key index is likely to face resistance at 1,220 points, 1,240-1,250 points, 1,260 points, 1,278-1,280 points, followed by the 1,300-1,305 point band.

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