CI likely to head south in Q1

  • Business
  • Monday, 06 Jan 2003

Last close (Jan 3): 633.50 points, off 16.90 points from a week ago. Week’s high: 648.50 points; Week’s low: 627.60 points. 

The KLSE Composite Index (CI) failed to maintain its upward momentum during the New Year four-day trading week and retraced sharply to close with minor losses. Aggressive selling of key index-linked stocks pressured the CI back to its mid-December 2002 lows at Friday’s close. The CI closed 2002 at 646.30 points, down 49.80 or 7.2% from previously. 

Weekly volume of the 100-stock CI during the shortened four-day trading week increased to 122.30 million shares from 86.19 million. 

Based on chart, the CI finished the first week of the New Year bearish. The speed and momentum of the decline last week, which resulted in the index returning almost all its recent advances, is technically disturbing. Despite the thin trading conditions, buying interest in key index-linked stocks remains lacklustre. It appears that the funds and smart-money investors are already focused on the geopolitical situation. 

Based on the daily chart, the index has an immediate chart support for this week at the 630.00–625.00 levels. Breaching of this 50% retracement chart support levels would signal the continuation of the bearish trend and send the index lower in search of a fresh platform below 620.00. 

Chart resistance for this week is seen at the 638.00–643.00 levels. Failure to push above this immediate chart hurdle in the event of a rebound would indicate the underlying strength of the index is weak and cause the index to resume its main downtrend. 

The technical outlook for the first quarter 2003 remains bearish. With investors already weighing possible US war with Iraq, fresh concerns over North Korea’s nuclear ambitions, soaring crude oil prices and prospects of another terrorist attack, it is tough to be bullish about the first three months of 2003. There are a whole lot of geopolitical factors that could derail a market recovery during this uncertain period. 

Faced with cloudy skies and stormy seas, it is very hard to get much of a technical reading out of the market. Our technical charts reveal the first quarter 2003 would be similar to the last quarter 2002. The CI would likely range from 580.00 to 680.00 points and probably end the first quarter near the upper-end of this trading range. 

The daily and weekly technical indicators closed the week negative and indicated the bearish momentum could expand into this week. 

Daily Money Flow Index (MFI): The daily MFI fell from a week's high of 72.48 points on Dec 30, 2002, and settled lower in the positive zones at 61.68. The declining MFI shows the index is in a distributive phase. The weekly MFI closed higher at 44.81 points. Analysis of the weekly MFI shows the near-term trend is neutral-to-slightly negative. 

Exponentially smoothed moving-average price line on daily high and low: The daily MAV-lines turned south last week and suggested a downward trend has started. The closing prices below the MAV-low line for the past two days show the index is in a bearish phase. Based on the MAV-lines, the CI has an immediate trend-change resistance at the 635.00–642.00 level. 

Daily stochastics: The daily stochastics triggered the sell signal on Dec 30 and signalled the start of a downward wave. The daily oscillators per cent K and D ended the week sharply lower at 24.18% and 52.97% respectively. Analysis of this daily oscillator shows the index has room for more downside trading. 

The weekly stochastics closed with a strong negative convergence and indicated the index was attempting a minor trend change. The weekly oscillators per cent K and D closed higher at 73.57 and 59.55% respectively. 

The 3- and 7-day exponentially smoothed moving-average price lines made a negative crossover on Jan 2 and closed Friday negative. The 3- and 7-day ESA-lines ended the week lower at 636.00 and 639.00 points respectively. Analysis of the ESA-lines indicates the index is in a bearish cycle and signals the technical drawback from the early December 2002 rally could continue. 

Relative Strength Index (RSI): The daily RSI eased from an intra-week high of 60.03 points on Dec 30, 2002, and closed the week sharply lower in the negative zones at 43.99. The daily RSI has indicated the immediate underlying strength of the CI is bearish. 

The weekly RSI reversed direction last week and ended lower at 37.11 points. Analysis of the weekly RSI indicates the index’s main trend is slightly negative. 

Daily moving-average convergence/divergence (MACD): The daily MACD (not shown in the chart) turned negative and flashed the sell signal on Dec 31. The MACD and trigger-line ended lower at the negative zones at minus 0.17 points and 0.40 of a point respectively. Analysis of the daily MACD shows the index is in a bearish cycle. 

The weekly MACD (not shown in the chart) retained its buy signal of a week ago and failed to flash the sell signal for the near term. The weekly MACD ended above the trigger-line and closed lower in the negative zones at minus 20.38 and minus 21.52 points respectively. 

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