Bursa Malaysia : Promising trend ahead

Saturday November 14, 2009

TREND ANALYSIS
A combination of positive catalysts the key driver
REVIEW:

Share prices on Bursa Malaysia kicked off the week on a steadier platform, with the benchmark FBM Kuala Lumpur Composite Index (FBM KLCI) advancing 1.38 points, or 0.11% to 1,263.14 amid follow-through buying momentum.

The underlying tone of the market was bullish after the recent correction. Adding to the positive mood, overnight Wall Street gained for the third straight day in a row, as an upgrade for a core index-linked counter, namely General Electric Co and gains in certain heavyweights outweighed poor employment data, which hit 10.2% to a 26½-year high.

A firmer performance in Asia-Pacific also aided the local sentiment.
Against the positive backdrop, the local bourse extended the upward thrust for the fifth consecutive day in robust business to settle at the day’s high of 1,267.75, up 6.99 points on Monday.

Overseas equities continued to rise the next day, led by overnight Wall Street, jumping a substantial 203.52 points to a 13-month high of 10,226.94 on renewed optimism after the Group of 20 finance ministers pledged to keep economic stimulus programmes in place until a recovery was assured.

Apart from stocks, a rally in soft and hard commodities as demand prospects brightened, such as world crude oil futures rebounding US$2 a barrel to US$79.43 and gold setting a new record above US$1,110 an ounce, also helped fan buying momentum in resource-related counters.

Riding on the solid offshore strength, the bulls on Bursa Malaysia confidently charged out of the recent peak of 1,270.44 to a near 18-month high of 1,277.81 during intra-day session before trimming gains slightly in late trade owing to an apparent profit-taking activity to close at 1,274.08, up 6.33 points on Tuesday.

Subsequently, liquidations kicked in. However, while the bulls took a breather due to overbought reason and an uninspiring offshore tone weighing on the local sentiment, smart hands continued to show keen interest in select quality issues and that has somewhat helped cushion the downside.
In range-bound to lower sessions, the FBM KLCI came off an intra-day high of 1,279.52 to finish down 3.93 points to 1,270.15 in mid-week. Although it managed to eke out a small gain of 1.60 points to 1,271.75 on Thursday, the broader market breadth was negative, with the scoreboard showing 287 winners versus 379 decliners.

And yesterday, the local bourse finished little changed, losing 0.79 of a point to 1,270.96 in mixed note, dampened by a lower Wall Street overnight and the lacklustre showing in regional trend.
Statistics: For the week, the bellwether FBM KLCI climbed 10.20 points, or 0.8% to 1,270.96 yesterday, against 1,260.76 on Nov 6. Turnover for the five-day week stood at 5.072 billion units worth RM5.938bil, compared with 6.577 billion shares valued at RM6.715bil done a week ago.
Technical indicators: The oscillator per cent K and the oscillator per cent D of the daily slow-stochastic momentum index continued to weaken after flashing a short-term sell at the top on Tuesday.

The past week saw the 14-day relative strength index retracing from a reading of 78 points on Tuesday to the 60 points level yesterday. A day after flashing the buy signal in mid-week, the daily moving average convergence/divergence (MACD) histogram went under the daily trigger line once again on Thursday due to lack of support.

Weekly indicators were deteriorating, with the weekly slow-stochastic momentum index moving out of the bullish zone and the weekly MACD on the verge of falling below the daily trigger line.
Outlook: Bursa Malaysia scaled to a near 18-month high of 1,279.52 in mid-week before turning range-bound on bargain-hunting interest alternated with profit-taking activity. In line with our expectation, the FBM KLCI had a futile effort to breach the relatively strong overhead resistance of 1,280 points on the first attempt but investors should not be too concern, as the bulls are likely to overcome that hurdle eventually due to a combination of positive factors which augurs well for equities.

Firstly, the global economy is on the mend, albeit a little bumpy. Secondly, the underlying tone of the overall market remains solid, judging by the volumes transacted in recent days.
With Maxis Bhd coming on board this week and driving liquidity to a greater level, the trend going forward appears promising, compounded by a traditional year-end “window-dressing” activity. Therefore, any retracement in the immediate term due to overbought reason is interpreted as an opportunity to accumulate.
Technically, indicators suggest another round of correction is on the cards, which is likely to be brief and shallow, with the 21-day simple moving average (SMA) and the 14-day SMA, resting at 1,259 and 1,257 points acting as initial support. Important floor is pegged at 1,232, also the 50-day SMA.
Heavy overhead resistance barriers remain at 1,280 points, 1,300-1,305-point band, followed by the 1,332 points.

By K.M. LEE