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As a consequence, the Kuala Lumpur Composite Index (KLCI) tumbled 30.65 points, or 2.8 per cent week-on-week to close at 1,059.50, with losses in Maybank (-3.22 points), Tenaga (-2.37), Genting (-2.36) and Axiata (-2.31) representing a third of the benchmark index's fall. Average daily trading volume and value fell to 1.58 billion shares worth RM1.64 billion, from 2 billion shares worth RM1.72 billion in the previous week.
However, the launch of Invest Malaysia 2009 at the end of this month is expected to cushion any downside and sustain market vigour in anticipation of more favourable developments that will drive interest in government-linked companies in relation to the economic corridors as well as other public projects.
More market and business-friendly initiatives are expected to be announced during the event. Further measures to liberalise the economy and greater focus on the services sector are expected to reduce the economy's reliance on exports and the manufacturing sector.
Locally, except for the foreign reserves number, no other economic data are due for release this week. On the US front, important indicators related to its housing market, personal consumption, durable goods orders and the Federal Open Market Committee's decision on rate decision are due this week.
No unpleasant surprises are expected. These numbers are expected to be consistent with the signs of an impending recovery in progress after a bottoming out process as reflected in last week's jobless claims, business activity index and leading index. Easing concerns over inflationary pressures as shown by a fall in US long-term bond yields is also positive to ensure efforts to revive the economy are not marred by any monetary tightening over the next six months.
Easing concerns over inflationary pressures are not expected to take the shine away from commodities, especially crude oil. While there are mixed views on the recent surge in oil prices and the commodity's fundamental, it is important to note that the rise in oil prices has always been dominated by future expectations. As demand is expected to rise from current 83.1 million bpd as the economic recovery gains traction next year, the under-investment in the sector over the last nine months will raise concerns over future supply that will drive oil prices higher and activities in the oil and gas sector.
Thus, current weakness in share prices of stocks like KNM, Sapura Crest, Perisai Petroleum, Tanjung Offshore, Petra Energy and Pantech can be deemed as a good opportunity to accumulate.
Technical outlook
Bursa Malaysia shares eased on profit-taking last Monday, led by lower liners falling in line with the region after the G8 finance ministers hinted that they may withdraw stimulus spending if green shoots in the global economy gain pace. The KLCI subsequently dipped from a high of 1,095.72 to close flat, but the overall market was broadly weaker.
The local market tumbled over the next three days, mirroring corrections in the region and US sparked by falling commodity prices caused by the stronger US dollar. The local blue-chip index was sold off to a two-week low of 1,052.48, the lowest since June 1, prior to a rebound on Friday after less jobless claims and improving manufacturing data from the US renewed hopes that the global recession may be nearing an end.
Among the other indices week-on-week, the FBM-EMAS Index retreated 259.22 points, or 3.5 per cent, to close at 7,098.53, while the FBM-Small Cap Index (SCI) plunged 950.72 points, or 9.5 per cent, to 9,023.90. The plunge in lower liners, with construction and property stocks related to Iskandar Malaysia leading the losses, contributed to the severe correction in the SCI.
The daily slow stochastics indicator for KLCI has levelled off at the oversold region following last week's sharp decline, while the weekly indicator hooked down from the overbought level to register a bearish divergence. The same can be said of the 14-day Relative Strength Index (RSI) indicator (Chart 1), while the 14-week RSI slipped below the overbought mark to trigger a sell signal.
The daily Moving Average Convergence Divergence (MACD) trend indicator also registered a bearish divergence reading following last week's sell-off, while the weekly MACD signal line is levelling off to signal weakening uptrend. On the 14-day Directional Movement Index (DMI) trend indicator, the ADX line has turned lower for a reading of 37.21 last Friday, while the contracting +DI and -DI lines will trigger a sell signal if the index weakens further this week.
Conclusion
Daily and weekly momentum and trend indicators for the KLCI have worrying bearish divergence signals which do not bode well for short-term bulls and momentum traders this week. Conversely, the oversold daily slow stochastics will hook up for a buy signal for a potential technical rebound on further strength. Nonetheless, expect limited upside on a rebound as on the weekly chart, a bearish engulfing weekly candle has confirmed a major resistance at the 200-week SMA, which is levelling at 1,094.
Sector-wise, anticipate construction and property stocks related to Iskandar Malaysia to remain under pressure. However, oil and gas related stocks could continue to gain investors' favour given the resilient crude oil prices and the possibility of rising inflation lifting commodity prices further.
As for the downside for the KLCI this week, critical supports from the 30-day SMA at 1,052 and the rising lower Bollinger band at 1,036 must not be broken on a closing basis to maintain near-term upward momentum for the broader market. A more important retracement support is at 1,034, the 23.6 per cent Fibonacci Retracement (FR) of the uptrend from 836 pivot low of March 12 to the recent peak of 1,095.91 of June 12. A decisive breakdown below this crucial support will see more significant downside risk towards next retracement support of 38.2 per cent FR at 996. On the upside, expect immediate resistance at 1,073, next at 1,083 and then 1,090 to 1,095.
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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