Weekly technical analysis

  • Business
  • Saturday, 25 Jan 2003


CONSOLIDATION came after a spectacular rally the previous week on the Kuala Lumpur Stock Exchange, owing to profit-taking activity and the sharp decline on Wall Street. 

Weaker regional bourses and the heightening fears over an imminent US-Iraq war further weakened trading sentiment, thus giving investors every reason to lock in profits during the week, and take a cautious stance. 

While blue chips were seen taking a breather in an overbought technical momentum, investors shifted their attention to other sectors for short-term gains. 

Small-capitalised second board counters and the previously sold down lower liners continued to attract speculative buying interest. 

Meanwhile, property and construction-related stocks managed to attract some buying interest during the week in anticipation that they would be the main beneficiaries of the pump-priming package, with details to be announced in March. 

Also, there was other positive news that could have helped cushion off some of the negative effects on the local bourse. 

Assurance given by Deputy Prime Minister Datuk Seri Abdullah Ahmad Badawi to foreign and local investment bankers and fund managers that there will be continuity of major policies charted by Prime Minister Datuk Seri Dr Mahathir Mohamad when the former takes over the reign, and JP Morgan’s remark that the Kuala Lumpur Composite Index (CI) may rise to between 850 and 900 points this year prevented the local bourse from retracing sharply when market consolidated this week. 

The CI ended Friday’s trading at 668.81 against 670.53 previously. Week-on-week, the key index lost a marginal1.72 points, or 0.3 per cent. 

Trading range for the key index was 12.09 points this week. It hit a high of 675.97 on Wednesday and touched a low of 663.88 yesterday. 

Total turnover for the week stood on the high side. It climbed slightly to 2.209 billion shares value at RM2.592 billion against 2.2 billion shares worth RM3.242 billion traded the previous week. 

Technically, the daily slow-stochastics momentum index has slipped below the 80 per cent bullish line and hooked down on the14-day relative strength index. These suggest that the local bourse may have reached a temporary market top and the CI is poised for further downward correction in the immediate term. 

However, other indicators like the daily and weekly moving average convergence/divergence (MACD) and the weekly slow-stochastics momentum index do not warrant us to believe so at this point in time, as these technical tools are still looking good, indicating further upside potential. 

Also, daily trading volume was encouraging and the underlying market sentiment remained buoyant. Furthermore, the local bourse has not shown any signs of exhaustion yet. The current profit-taking activity should be interpreted as typical and healthy for the market in the medium term, especially since it has gained so much over the past week. 

We maintained our bullish stance and investors could count on Valuecap to lend support if not giving the market a boost next week. The CI is likely to resume its upward momentum while the horse is galloping away (the lunar year of the horse is ending on Jan 31) where confidence and optimism are waiting to greet the goat (the lunar year of the goat begins on Feb 1). 

The 665-650 levels stay put as bargain hunting zone while resistance is seen at the 690-700 points. Following the strong rebound of the CI from an inverse head-and-shoulders formation, the market has indeed bottomed-out and may achieve an upside objective of 730–738 eventually. 

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