Weekly technical analysis

  • Business
  • Saturday, 18 Jan 2003


THE Kuala Lumpur Stock Exchange (KLSE) had a spectacular week amid heavy trading interest, buoyed by news that the newly established asset management firm, ValueCap Sdn Bhd, has started buying into the local equity market. 

ValueCap, a RM10 billion-fund equally-owned by state investment arms Khazanah Nasional Bhd, Permodalan Nasional Bhd and Kumpulan Wang Amanah Pencen stormed the local bourse by surprise, snapping up blue chips in a buying spree. 

Local institutions with an underweight portfolio were seen nibbling some quality stocks and sporadic buying from foreign orders further lifted market sentiment. 

Retail investors waiting on the sidelines during the recent market weaknesses jumped into the bandwagon in order not to miss the boat, thus causing the local market to end the week sharply higher. 

This is the type of market momentum investors were yearning for ahead of the Lunar New Year. First, we had the ValueCap news that sparked off a rally, followed by the favourable economic data and corporate mergers and acquisitions to attract follow-through buying. 

The government had announced on Wednesday that the consumer price index (CPI) for December rose 1.7 per cent year-on-year and was 0.2 per cent higher than in November. 

Meanwhile, on the corporate front, announcements that Sapura Telecommunications Bhd were to buy a 39 per cent stake in Crest Petroleum from Renong and Malaysian Resources Corp Bhd’s plan to buy a 24.9 per cent stake in major property developer UDA Holdings Bhd came at the right time to give the market another booster.  

Trading range for the CI was a wide 35.15 points this week. It opened trading on Monday at 637.39, which was also the week’s low and moved up to a high of 672.54 on Thursday. 

Week-on-week, the key index gained a huge 34.71 points, or 5.5 per cent to close at 670.53 against 635.82 the previous week. 

Strong buying support during the week has resulted the weekly turnover to shoot up sharply to 2.2 billion shares worth RM3.242 billion as compared with 673.221 million shares valued at RM1.287 billion traded previously. 

Sharp gains on the Kuala Lumpur Composite Index (CI) during the week pushed the daily slow-stochastics momentum index into the overbought territory and the oscillator per cent K of the weekly slow-stochastics, which has indicated a mild hooked down last week, slipped below the oscillator per cent D this week. 

However, the daily and weekly moving average convergence/divergence (MACD) indicators triggered buy signals earlier in the week to stay firm. The daily MACD is now back into the positive territory while the weekly MACD has expanded positively against the weekly signal-line after moving sideways in the past several weeks. 

Technically, the CI may consolidate in the early part of next week after a good run in view of its slightly overbought conditions but momentum is anticipated to pick up later. The underlying sentiment remained strong and profit-taking activity is healthy for the market in the near-term. Any pullback on the key index is expected to be brief and perceived as an opportunity for those who wish to buy more. The 665 – 650 support levels are seen as bargain hunting zone now. 

Based on charts, the local market appeared to be more bullish at present following the strong rebound of the key index from the head-and-shoulders bottom formation. It recovered from the 623.30 level and then broke the neckline at 650 to make it to a high of 672.54. The key index has now moved away from its eight-month old bearish channel to trend in a new area where a new upward trend was formed. 

Indicators are all pointing to a sustainable bull market in the immediate-to-medium-term. Mild resistance is seen at 690-700. The CI is envisaged to achieve an upside objective of 730-738 eventually. It is worthwhile to ride the current bullish wave to as high as possible but it is best to apply a trailing stop-loss point, depending on individual trading strategy. 

Despite being bullish, investors should remain cautious due to uncertainties around the world. 

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