Market displays staying power

REVIEW: Bursa Malaysia started out the week almost flat, with the benchmark FBM Kuala Lumpur Composite Index (FBM KLCI) up 0.11 of a point at 1,360.56 in cautious mood.

Overnight US stocks were lower, pulling the Dow 21.42 points lower to 10,653.56 the previous Friday, as the latest economic data showed a larger-than-expected drop in July payrolls.

Over on the New York Mercantile Exchange, light sweet crude plunged US$1.31 to US$80.70 per barrel, the third in a row, tracking the dismal performance in equities.

Though most stock exchanges in the Asia-Pacific region traded steadier, the upside potential was limited owing to sporadic profit-taking activity.

Given the lack of clear direction from abroad, the local bourse subsequently drifted sideways to marginally lower in dull trading, but the key index managed to eke out a small advance, rising 0.21 point to 1,360.66 at the close on Monday, largely due to a late buying in select blue chips.

Global markets were mixed once more the next day. Despite a rebound in the Dow and crude oil prices in overnight session, Asian equities slipped, with Shanghai suffering big losses on jitters about the pace of the global economic recovery after China reported a weaker-than-expected import data.

Surprisingly, the local bourse was pretty calm, but in the absence of fresh impetus to spur buying, investors opted to stay on the sidelines and that has resulted in the market retracing 0.95 point to 1,359.71 in an uneventful trade on Tuesday.

After treading within a tight range in an indecisive manner the past several days, the local bourse finally took a change for the worse, as renewed fears of sustained global economic stagnation prompted investors to flee to safer assets.

With gloom in global equities dominating the local sentiment, share prices on Bursa Malaysia came under tremendous stress to retreat, dropping 6.80 points to 1,352.91 in mid-week.

Thereafter, it extended the downward spiral, spooked by a sell-off in the US on growing worries about economic slowdown, but the key index finished well off the day’s low of 1,342.07.

Apparently, regional bourses regained some composure and showed signs of stability and that enticed the local investors to seek bargain buys. At the close, the FBM KLCI only lost 3.58 points to 1,349.33 on Thursday.

And yesterday, sustained bargain hunting nibbling dominated the floor, pushing the key index up 10.82 points to 1,360.15 in robust business, boosted by a firmer regional markets trend.

Statistics: On a Friday-to-Friday basis, the FBM KLCI shed 0.3 point to 1,360.15 yesterday, versus 1,360.45 at Aug 6.

Weekly turnover stood at 3.939 billion units valued at RM5.817bil, compared with 4.741 billion shares worth RM6.766 done previously.

Technical indicators: The oscillator per cent K curved up from the neutral territory and climbed over the oscillator per cent D of the daily slow-stochastic momentum index to trigger a short-term buy on Thursday.

Likewise, the 14-day relative strength index (RSI) pulled back to a low of 37 on Thursday before reversing up to settle at around the 53 points level yesterday.

In stark contrast, the daily moving average convergence/divergence (MACD) histogram expanded negatively against the daily signal line to stay bearish. It triggered a sell on Tuesday.

Weekly indicators were weakening, with the weekly slow-stochastic momentum index flashing an unconfirmed sell signal at the top and the weekly MACD turning sideways despite retaining the buy call.

Outlook: The market survived a scare the past week. Just when everyone thought the bears had won the battle and likely to dictate the direction of the market in the immediate term, the bulls hit back in vengeance and succeeded, thus guiding the FBM KLCI the direction to return to Bollinger Upper Band.

Until now, there was no real winner yet in this bulls versus bears fight. However, we certainly consider the quick rebound in the key index a positive sign, and arrive at a conclusion that it has the potential to go higher from here, simply because the market has shown some staying power at current levels.

Technically, while the daily MACD continues to expand negatively against the daily trigger line after a bearish cross, suggesting downward momentum, other short-term indicators such as the daily slow-stochastic momentum index and the 14-day RSI, curve up from the oversold area.

Against the mixed backdrop, the local bourse is likely to trade range-bound until a clearer picture emerges, with initial resistance anticipating at the most recent peak of 1,370.52. The stronger overhead hurdle is maintained at 1,380 – 1,382-point band and the next, at the 1,400 points psychological barrier.

Current support is pegged at the 21-day simple moving average of 1,352.59, followed by the 1,342.07 points. The lower support floors are resting at 1,329.71 points and 1,300.96 points, which is the 50-day SMA and 200-day SMA respectively.


TREND ANALYSIS BY K.M.LEE