More downward pressure seen

LAST close (Feb 21): 654.49 points, off 2.46 points from a week ago. Week’s high: 662.09 points; Week’s low: 651.90 points. 

The KLSE Composite Index (KLCI) failed to hold on to small gains made during early trading and slipped on light selling to a three-week low on Friday before closing the week with minor losses. Late buying of index’s heavyweight stocks Tenaga Nasional, Petronas Gas, MISC and Sime Darby helped lift the index off from its intraweek’s lows. Trading remained thin and soft as worries over possible war in Iraq encouraged many traders and investors to stay on the sideline. 

For the week, only two of the main index heavyweight stocks – Maybank and Petronas Gas – ended in the plus column and supported the index by a combined 0.57 of a point. Telekom, Tenaga Nasional, Maxis Communications, Sime Darby, PLUS Expressways and Public Bank all closed with minor losses and chipped the index by a combined 2.02 points.  

Total volume of the 100-stock KLCI last week improved slightly to 162.33 million shares from 158.37 million shares a week ago. Average daily volume for the week fell to 32.46 million shares from 39.59 million previously.  

The Iraq conflict would continue to dominate market sentiment and direction this week. Bargain-hunting investors of key-index linked stocks are likely to stay on the sideline and look for war-discount in the event of a war before returning to the market in a big way.  

Chart-wise, the KLCI closed the week slightly bearish and are set to trend lower this week. Technical tools are mostly negative during Friday’s close and suggested further downside trading before the index becomes technically oversold. An immediate chart-support is seen for this week at the 650-645 level. Violation of this immediate support could send the index lower and test its next minor chart-support at the 630-620 level.  

Chart-resistance for this week remains unchanged at the 660-665 level.  

The daily and weekly technical indicators closed the week mixed and indicate that the index may have reached a temporary bottom. 

The daily Money Flow Index (MFI) fell from a weekly high of 36.84 points on Feb 20 and closed the week moderately lower in the negative zones at 27.86 points. The daily MFI indicates that the index has room for more downside trading this week before entering into a technically oversold position. The weekly MFI ended fractionally higher in positive zones at 51.97 points. Analysis of the weekly MFI indicates that the near-term market is still technically neutral.  

Exponentially smoothed moving-average price line on daily high and low: The daily MAV-lines remained in gradual downtrend and indicated that the market is in a bearish phase. Closing price below the MAV-low level last Friday shows that the index had successfully moved into a trend reversal and is expected to remain bearish for the immediate term. Based on the MAV-lines, the KLCI has an immediate resistance at the 656-level this week.  

Stochastics: The daily stochastics triggered the sell-signal on Feb 20 and remained bearish during Friday’s close. The daily oscillator per cent K and D settled the week higher at 41.79% and 53.00% respectively. Analysis of the daily stochastics shows that the market’s downward pressure could be expanded this week. The weekly stochastics stayed bearish for the near-term trend. The weekly oscillator per cent K and D settled the week slightly sharply lower at 50.79 and 65.25 % respectively.  

The 3-day and 7-day exponentially smoothed moving-average resumed its bearish divergence last week and closed with its sell-signal intact. The 3-day and 7-day ESA-lines ended the week with the 3-day and 7-day lines at 655.00 and 657.00 points respectively. Based on this technical tool, the index’s immediate cycle could stay bearish this week.  

Relative strength index (RSI): The daily RSI (not shown in the chart) lost further ground last week and dropped from a weekly-high of 55.59 points on Feb 17 and closed the week lower in the negative zone at 49.09 points.  

Analysis of the daily RSI indicates that the immediate underlying strength of the market had turned bearish and confirmed that further downward trading could take place this week. The weekly RSI closed lower in negative territory at 38.85 points. Analysis of the weekly RSI shows that the index’s near-term direction is negative.  


Daily moving-average convergence/divergence (MACD): The daily MACD (not shown in the chart) ended the week with its sell-signal intact and indicated that the downward pressure on the index could continue this week. The MACD and trigger-line ended the week lower in positive territory at 0.87 point and 1.78 points respectively.  

The weekly MACD (not shown in the chart) remained positive for the near-term trend. The weekly MACD closed above the trigger-line and settled slightly higher in negative zones at minus 8.40 and minus 10.85 points respectively. 

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