Weekly technical analysis

  • Business
  • Saturday, 01 Feb 2003


TRADING sentiment on the Kuala Lumpur Stock Exchange (KLSE) was volatile this week as the US-Iraq issue heated up. 

The sharp fall on Wall Street the previous Friday worsened the situation. 

The local bourse succumbed to heavy dumping of shares shortly after it opened for trading on Monday in the wake of fresh war jitters, sending the benchmark Composite Index (CI) down by almost 17 points or 2.5 per cent in the first half-hour of trading. But late bargain hunting on selected blue chips helped the market to recoup most of its earlier losses and the CI ended with a marginal loss that day. 

Although weak sentiment continued to rule the regional markets the next day, the KLSE turned around sharply on Tuesday. The CI rose sharply amid bargain hunting on blue chips by local funds, likely to be Valuecap, while penny stocks and lower liners managed to attract speculative play. 

However, the local bourse could not sustain the upward momentum ahead of the long weekend. Investors continued to reduce their exposure by selling into strength to minimise risks as the Lunar New Year celebrations draw nearer, leaving the key index to seesaw in a range on Wednesday and Thursday. The KLSE was closed on Friday and will resume trading next Wednesday. 

The CI ended the holiday shortened-week on Thursday at 664.77 against 668.81 previously. Week-on-week, it lost 4.04 points, or 0.6 per cent. 

Trading range for the key index was 20.4 points this week. It touched a low of 652.11 on Monday before making it to a high of 672.51 on Wednesday. 

Total turnover for the four-day week reduced sharply to 1.172 billion shares valued at RM1.872 billion against 2.209 billion shares worth RM2.592 billion traded the previous week. 

The steep fall on the CI on Monday was quite disturbing initially but the sudden change in mood on Tuesday has helped to correct the bearish outlook. 

The daily slow-stochastics momentum index, which has slipped below the 80 per cent bullish line the previous week, has reversed and the downward momentum on the 14-day relative strength index appeared to have slowed down. 

Meanwhile, the weekly slow-stochastics momentum index and the weekly moving average convergence/divergence (MACD) indicator maintained its firm up trend but the daily MACD has indicated a negative divergence due the volatile movement of the CI during the week. 

Technically, the CI is likely to be range-bound next week as market sentiment remained cautious amid growing fears over a possible US-led war against Iraq. 

However, the daily trading volume has been on the decline while the key index was holding firm at current levels, implying that selling pressure has subsided and Valuecap has proven to be supportive. Its presence is likely to limit the downside risk even if the US-Iraq war were to break out. Furthermore, the underlying market sentiment remained strong judging by the CI's ability to rebound quickly on any weaknesses. It is a matter of time the local bourse resumes its rally. 

Therefore, we maintain that the outlook remains bullish in the medium term, provided the CI stays above the all-important 650-point support level. 

Immediate resistance is seen at 675 and the next overhead hurdle is at the 690-700 band. 

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