More sideways consolidation likely [Business Times (Malaysia)]
(Business Times (Malaysia) Via Acquire Media NewsEdge) DESPITE a correction of United States stocks last week, sparked by predictions that the United States Federal Reserve could propose tapering bond purchases at its monetary policy meeting next month, Bursa Malaysia's blue chips stayed resilient even as profit-taking pressured stock prices.
The return of speculative retail interest on lower liners and small caps after the long Hari Raya break helped to cushion the downside, with buying momentum improving significantly on the broader market.
For the week, the FTSE Bursa Malaysia KLCI (FBM KLCI) rose 8.92 points, or 0.5 per cent, to 1,788.24, with most of the gains coming from CIMB (+18 sen), IHH (+15 sen), Maybank (+8 sen) and Axiata (+6 sen). Average daily traded volume and value improved markedly to 2.07 billion shares and RM1.79 billion, respectively, compared with 1.28 billion shares and RM2.17 billion, respectively, the previous week, as blue chips stayed largely in consolidation mode while rotational plays stayed healthy on lower liners.
There is no assurance the benchmark index will remain resilient if the US equity market continues to drift lower in anticipation of quantitative easing (QE) cuts in September. The US 10-year bond yield hit a two-year high of 2.864 per cent last Friday and could soon rise above three per cent if the dwindling volume and desire to cash out are not met with strong buying support. Jobless claims that hit a six-year low last week was instrumental in strengthening the belief the Fed will stick to its guidance of a tapering beginning next month.
The million dollar question now is how severe the tapering will be. At the backdrop of rising bond yields, the Fed is highly unlikely to pursue any drastic cuts that would dampen the housing market. As it is, the impact of potential QE cuts is already visible on the housing market as the one percentage point increase in long-term interest rates in anticipation of that has led to lower-than-expected housing starts and building permits in July. Consumer confidence, while still robust, has slipped to 80 in August from a six-year high of 85.1 a month earlier.
Minor or lesser-than-expected cuts could revive the index post Fed meeting on September 17-18, but the period between now and then could turn out to be volatile. While the existing home sales and house price index data this week will shed more light on consumer sentiment, investors will be eager to get the details of the July Federal Open Market Committee meeting when the Fed releases the minutes on Wednesday.
As the FBM KLCI is still resilient, investors are advised to adapt a trading mentality during this period by selling on strength overvalued blue chips and wait to buy back at lower prices later, possibly as we move into September. Given that the stronger outlook for US dollar will benefit most exporters, it is timely to scout for potential beneficiaries among the gloves, semiconductor, manufacturing and oil and gas players that largely bill their invoices in US dollar and have foreign business units that deal in those currencies that have appreciated against the ringgit.
Some big cap firms that are likely to incur translation losses from their foreign currency denominated loans like Tenaga, Telekom Malaysia and Axiata could face some selling pressure if the ringgit continues to remain weak. Besides, importers will face the brunt as well when they incur higher transaction cost when buying their inputs. For instance, media players like Media Prima and Astro will face higher newsprint prices and content costs.
Spot month August KLCI futures contract traded on the Bursa Malaysia Derivatives Bhd gained another 5.5 points, or 0.3 per cent, last week to 1,789, dwindling to a 0.8-point premium to cash, instead of the 4.2-point premium to the cash index the previous Friday, as more traders relinquish long positions amid concerns over the higher potential for early tapering of the Fed's stimulus measures.
The local stock market staged a rebound last Monday, helped by regional strength and investors returning from the Hari Raya holidays.
The KLCI gained 5.25 points to close at 1,784.57, off an early low of 1,777.87 and a high of 1,786.2, as gainers led losers 494 to 309 on moderate trade, which totalled 1.59 billion shares worth RM1.7 billion. Stocks extended gains the next day, shored up by firmer regional markets amid hopes for further stimulus to stabilise the Chinese and Japanese economies.
The KLCI jumped 10.52 points to close at 1,795.09, off an opening low of 1,784.46 and high of 1,796.29, as gainers swarmed losers 555 to 241 on strong volume, which totalled 1.99 billion shares worth RM1.87 billion.
Profit-taking checked early gains on blue chips on Wednesday, but strong retail interest on lower liners and small caps helped buoy the broader market. The KLCI eased 1.36 points to settle at 1,793.73, off an opening high of 1,801.26 and low of 1,791.46, as gainers edged losers 447 to 349 on robust trade totalling 2.2 billion shares worth RM1.71 billion.
Blue chips eased lower the following day, dampened by profit-taking and regional weakness amid higher predictions that the Fed will reduce stimulus next month, but rotational buying interest stayed robust on lower liners. The KLCI slid another 1.52 points to end at 1,792.21, off an early low of 1,791.23 and high of 1,797.17, as gainers edged losers 418 to 381 on strong volume totalling 2.41 billion shares worth RM2.07 billion.
On Friday, blue chips extended profit-taking consolidation after overnight US stocks suffered losses as a drop in jobless claims raised expectations the Fed will reduce stimulus next month. The index lost another 3.97 points to end the week at 1,788.24, off a low of 1,786.76 and high of 1,791.26, as losers beat gainers 422 to 379 on active trade, which totalled 2.13 billion shares worth RM1.62 billion.
Trading range for the local blue-chip benchmark index broadened to 23.39 points last week, compared to the 11.94 points range the previous week. The FBM-EMAS Index added 68.88 points, or 0.56 per cent, last week to 12,477.35, while the FBM-Small Cap Index climbed 363.05 points, or 2.36 per cent to 15,738.74, as small cap stocks continued to attract heavy speculative rotational plays.
The daily slow stochastic indicator for the FBM KLCI is hooking down again at the neutral region due to weakness on the index late last week, reinforcing the fresh sell signal on the weekly indicator. The 14-day Relative Strength Index (RSI) indicator has also hooked downwards for a lower reading at 51.64, but the 14-week RSI contradicted with a hook up for a stronger reading at 64.32.
As for trend indicators, the daily Moving Average Convergence Divergence (MACD) has flattened to signal consolidation, or sideways trading, but the weekly MACD's fresh sell signal doesn't augur well for sentiment. The 14-day Directional Movement Index (DMI) trend indicator has signalled a trendless market, while the +DI and -DI lines crossed for a buy last week.
With the local blue-chip benchmark index's technical indicators flashing bearish to neutral signals and a trendless market, further sideways consolidation is likely this week.
Moreover, expect choppy trading to persist this month with investors concerned over a higher potential for tapering of bond purchases by the Fed next month to dampen the near-term market outlook.
Still, the lower liners and small caps space should out-perform as long as buying momentum stays robust.
Immediate support for the index stays at 1,772, the 23.6 per cent Fibonacci Retracement (FP) of the 7/2/13 low of 1,597 to the all-time high of 1,826, with stronger supports coming in at 1,754, the rising 100-day moving average level, and 1,738, the 38.2%FR levels.
The June 25 low of 1,723 would act as an important pivot support. Immediate resistance remains at the 1,800 psychological level, with next hurdle at 1,814, the 150 per cent Fibonacci Projection (FP) of the 1,526 pivot low of May 18 2012 to this year's April 30 high of 1,718. The next resistance would be at the all-time high of 1,826 of May 6.
Chart-wise, continue to advocate investors looking to buy on weakness blue chips such as CIMB and Gamuda for oversold rebound, and accumulate lower liners like DRB-HICOM, property stock Glomac and IJM Land, and construction stocks Eversendai and TRC Synergy for longer-term gains.
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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