Technical outlook positive for CI


Last close (March 14): 628.55 points, down 7.11 points from a week ago. Week’s high: 635.60 points; Week’s low: 615.77 points. 

The KLSE Composite Index (CI) rebounded on a mild technical correction after having made fresh lows for the year and regained some of its excessive war-fear losses last week. Government measures unveiled last Tuesday to make Malaysia's capital markets more investor friendly and the strong rally on Wall Street boosted sentiment. Light profit-taking in key blue-chip stocks emerged late Friday when news that the economic stimulus package to boost economic growth due for release at the end of March would be postponed to April 7. 

For the week, index heavyweight Telekom fell 15 sen to RM7.30 and eroded the CI by one point. Tenaga Nasional, Maxis Communications, Sime Darby and Public Bank all ended in the minus column and removed 2.23 points from the index. Maybank, Petronas Gas, MISC and British American Tobacco all settled with marginal gains and supported the index by a combined 1.21 points. 

Weekly volume of the 100-stock CI rose to 233.47 million shares from 140.17 million a week ago.  

Based on chart, the CI ended the week on a constructive note and is expected to continue with its upward correction, barring any drastic negative changes in the Iraqi crisis and threat of war actions this week. Continuation of the positive momentum this week could send the index higher for a test of its immediate chart ceiling at the 635.00645.00 levels. Minor chart resistance stands at the 650.00 level. 

Immediate chart support for this week stands at the 625.00–620.00 levels. Any break below this support would turn the immediate chart picture negative. 

Technical analysis of the top eight index-linked stocks shows the CI could trend slightly higher this week. Based on the 3- and 7-day exponential smoothed moving-average lines, four of the top eight stocks triggered their buy signals last week and remained positive at Friday’s close. 

Maybank, MISC, Petronas Gas and Public Bank all ended with their ESA-line buy signals intact and indicated a trend reversal has started on these stocks. Maxis Communications, Telekom, Tenaga Nasional and Sime Darby all retained their ESA-line sell signals at Friday’s close. These eight stocks command a total of 47.82% weightage in the CI. 

The daily and weekly technical indicators ended slightly positive and signalled the mild upward technical correction could be expanded this week. 

The daily Money Flow Index (MFI) rebounded strongly from a weekly's low of 15.69 points on March 11 and ended higher in the positive zones at 30.54. The daily MFI’s push above the 20-point mark last week confirmed an upward cycle has started. 

The weekly MFI remained friendly for the near term and settled lower in the positive zones at 50.40 points. Analysis of the weekly MFI indicates the near-term market would remain neutral-to-slightly positive. 

Exponentially smoothed moving-average price line on daily high and low: The daily MAV-lines eased marginally and maintained their downward trend last week. Closing prices below the MAV-low level for the last 16 days indicate the downward cycle is not over. Based on the MAV-lines, the CI has an immediate cycle resistance at the 635.00–640.00 levels. A successful break above this trend-reversal resistance would confirm a minor trend change has started. 

Stochastics: The daily stochastics triggered the buy signal on March 12 and managed to stay constructive at Friday’s close. Analysis of this daily oscillator shows the upward cycle that started four trading days ago could be sustained. 

The daily oscillators per cent K and D settled the week higher and out of the bearish extended-move zones at 50.77% and 34.66% respectively. 

The weekly stochastics remain negative for the near-term trend and gave a strong positive convergence signal at Friday’s close. The weekly oscillators per cent K and D ended higher at 13.96% and 14.67 % respectively. 

The 3- and 7-day exponentially smoothed moving-average price lines stayed bearish at Friday’s close and indicated a strong positive convergence for a trend reversal. The 3- and 7-day ESA-lines settled the week with the 3- and 7-day ESA-lines lower at 628.00 and 630.00 points respectively. 

Relative Strength Index (RSI): The daily RSI (not shown in the chart) rebounded strongly from a week's low of 23.02 points on March 11 and settled the week higher in the negative zone at 35.35. Analysis of the daily RSI shows the market is in a mild upward adjustment and has the potential for further advances. 

The weekly RSI settled lower in the negative territory at 36.88 points. Analysis of the weekly RSI shows the near-term trend would stay neutral-to-slightly friendly. 

Daily moving-average convergence/divergence (MACD): The daily MACD (not shown in the chart) closed the week with its sell signal intact and indicated the index is not out of its bearish cycle yet. The MACD and trigger-line settled the week sharply lower in the negative territory at minus 7.60 and minus 6.61 points respectively. 

The weekly MACD (not shown in the chart) triggered the sell signal at Friday’s close and indicated the main trend is bearish. The weekly MACD ended below the trigger-line and closed lower in the negative zones at minus 10.10 and minus 9.84 points respectively. 

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