The 30 blue-chip benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) rose for a fourth straight week, gaining 8.76 points, or 0.66 per cent to close at 1,326.45, with gains in Public Bank (+26 sen), CIMB (+11 sen), Sime Darby (+12 sen), IOI Corp (+7 sen) and MISC (+18 sen) contributing to most of the index’s rise. Average daily trading volume bounced back to a four-week high at 719.2 million shares with average value at RM1.15 billion, compared against the 546.2 million shares and RM897.3 million average the previous week.
As expected, knee-jerk reactions on China’s decision to float its currency pushed up the FBM KLCI to an intra-week high of 1,335.3, less than five points away from the 1,340 resistance it was expected to test, before selling pressures kicked in.
Further news on China’s decision to allow its funds to invest in Malaysian market under the “qualified domestic institutional investors” scheme had no impact on the market. With better growth prospects locally, yuan’s appreciation potential and Malaysia’s expensive valuation vis-à-vis Singapore and South
With regard to the oil and gas sector, it is noteworthy to highlight that many listed players are still trading at a cheap single-digit forward price-to-earnings multiple. Investors’ appetite for the sector is expected to improve as we move into the second half when Petronas is likely to announce some of the delayed projects like the RM3 billion LNG gasification plant in Malacca and RM2 billion Sabah oil and gas terminal.
In fact, it has much vested interest to ensure that order flows pick up in the next four months to shore up investors’ interest and valuation multiples, just in time for the listing on its subsidiary, Malaysia Marine & Heavy Engineering Sdn Bhd (MMHE) in October.
As such, investors should regard any price weakening in the undervalued oil and gas players as an opportunity to accumulate for medium-term gain. The listing of MMHE is likely to have the same positive effect that Masterskill Education Group had before its IPO on share prices of other listed education players.
As for the broader market, the mid-year window dressing activities have the capacity to push up the index to test the May peak of 1,349 this week. This is a good opportunity to lock in profits on some blue chips as the FBM KLCI’s expensive valuation vis-à-vis the regional markets and deteriorating external economic conditions have the tendency to push for a market correction post window-dressing.
Many US economic indicators that will be released this week, like the consumer confidence, ISM manufacturing, pending home sales, vehicle sales, non-farm payrolls and factory orders are likely to mirror its lower-than-expected first quarter GDP. This could lend more credence to the US central bank’s downbeat tone last week about the pace of US economic recovery and affect global equity market sentiment. Nonetheless, this bearish undertone is yet to be reflected in Malaysia’s trade figures for May that will be released this Friday. The outcome will be more prominent in the next three months when the impact of European austerity measures begins to cascade and affects the rest.
Technical outlook
Spot month June KLCI futures contract traded on Bursa Malaysia Derivatives Bhd was up 6.5 points or 0.5 per cent for the week at 1,325, reversing to a 1.45-point discount to the cash index, compared with the 0.8-point premium the previous Friday. Long liquidation and short-selling interest picked up to depress futures prices as traders expect limited upside due to overbought conditions.
Bursa Malaysia shares rallied on Monday, with banking stocks leading gains after China allowed the yuan to appreciate against the US dollar, triggering a rally in regional markets. The FBM KLCI surged 17.6 points to settle at the day’s high of 1,335.29 on active trade which totalled 921million shares worth RM1.51billion. The market ended lower the next day on profit-taking in line with regional losses on renewed concerns over Europe’s debt crisis after rating agencies downgraded BNP Paribas, France’s largest bank, and said Spanish banks face difficult years. The index lost 11.85 points to close at the day’s low of 1,323.44 on slower trade.
Stocks rebounded Wednesday as renewed bargain hunting encouraged by regional recovery offset earlier losses due to worries over lower US home sales and Europe’s debt crisis. The FBM KLCI closed up 6.26 points at the day’s high of 1,329.7, helped by late gains on Sime Darby, DiGi, Tenaga and BAT. However, the local stock market ended weaker the following day due to late profit-taking and cautious regional tone dampened by weak US new home sales, with the index settling near session lows, giving back 3.83 points to close at 1,325.87.
The market extended profit-taking congestion ahead of the weekend following the overnight correction on US and European markets, led by losses in banks and retailers on worries over regulation and weak spending amid renewed euro zone debt concerns. Nonetheless, the blue-chip barometer ended up 0.58 of a point at the day’s high of 1,326.45, lifted by late strength on selected index heavyweights.
The trading range last week shrank to 16.79 points, compared with the 23.09-point range the previous week. The FBM-EMAS Index rose another 74.07 points or 0.8 per cent week-on-week to settle at 8,956.05, while the FBM-Small Cap Index added 54.01 points, or 0.5 per cent to 10,945.25.
The daily slow stochastics indicator for the KLCI flashed a sell signal and hooked down to below the overbought level (Chart 1), but the weekly indicator extended higher to sustain a bullish reading. Meanwhile, the 14-day Relative Strength Index (RSI) stabilised with a reading of 60.01, mirrored by the 14-week RSI which read 59.15.
The daily Moving Average Convergence Divergence (MACD) trend indicator climbed above the zero mark to signal a strengthening uptrend, reinforced by the weekly MACD signal line which is hooking up to indicate improving upside bias. The +DI and –DI lines expanded following the previous week’s buy signal with a steadily rising ADX line on the 14-day Directional Movement Index (DMI) indicator, suggesting promising upside potential.
Conclusion
Save for the daily slow stochastics indicator, all other momentum and trend indicators turned more positive to highlight improving upside potential for the FBM KLCI this week. Moreover, increased first-half window-dressing activities should shore up blue chips by mid-week, hence the index will be well-supported.
Nonetheless, given the increasingly overbought situation on blue chips as they rise higher on window-dressing, expect strong profit-taking and selling resistance to cap upside. Immediate resistance is seen at last Monday’s closing high of 1,335, with stronger resistance at the May 4 peak of 1,349.92, and next higher resistance at 1,354. Immediate support is retained 1,315, the 50-day moving average, next at 1,309, the 61.8 per cent FR from the 1,349 peak of May 4 to the 1,243 trough of May 27, with more significant support seen at 1,305, the 100-day moving average. Better supports are available at 1,297, the 50 per cent FR, and then the 38.2 per cent FR at 1,284.
Investors should maintain a take profit or sell-on-strength strategy this week to capture immediate profits, as chances for a profit-taking correction post wind-dressing is high. Looking ahead, chart-wise, investors should look for opportunities to re-enter the market upon a profit-taking dip, with top favourite stocks to bargain being CIMB, Maybank, Tenaga, Supermax, MRCB, UEM Land, 3A Resources and Jaks Resources for recovery.
The subject expressed above is based purely on technical analysis and opinions of the writer. It is not a solicitation to buy or sell.
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