CI poised for mild upward correction

LAST close (April 25): 627.73 points, off 7.88 points from a week ago. Week’s high: 635.24 points; Week’s low: 622.80 points. 

The KLSE Composite Index (CI) fell on light trading in early trading and managed a mild technical turnaround toward late trading on light bargain-hunting buying of selective blue-chip stocks. Expectation that the Malaysian economic stimulus package due to be announce anytime now to counter the negative effects of the war in Iraq and Severe Acute Respiratory Syndrome would be supportive for the market encouraged some fund purchases.  

Tenaga Nasional recovered 25 sen to RM9.10 and supported the CI by 1.63 point. MISC and British American Tobacco both ended with marginal gains and contributed a combined 0.88 point gain to the index. Telekom sank 30 sen to RM7.15 and took 1.99 points off the CI. Public Bank fell 18 sen and erased 1.75 points from the index. Maybank, Sime Darby, Plus Expressways and Genting all ended in the minus column and removed a combined 1.79 points lost to the index.  

Total weekly volume of the 100-stock CI improved marginally to 133.88 million shares from 104.19 million shares a week ago. Average daily volume for the week increased to 26.77 million shares from 20.83 million shares previously.  

Chart-wise, the CI closed the week slightly positive. Friday’s moderately strong technical rebound after the test of its most recent-low below the 625 level last Thursday and Friday indicates that the index may have reached a temporary bottom.  

Despite the fact that we did not get to see a classical key-reversal signal, the immediate momentum of the index are expected to be constructive if the overhead chart resistance at the 630 level gets penetrated during early trading this week. Based on the daily bar-chart, the index has a minor resistance at the 635-638 level, and these levels are expected to be tested if the technical recovery strength could be expanded this week. 

Chart support for this week is seen at the 624-626 level. Violation of this level would signal that the bears are once again in control. 

The daily and weekly technical indicators ended the week neutral-to-slightly negative and indicated the possibility of a mild upward adjustment this week. 

The daily Money Flow Index (MFI) closed the week lower at 35.70 points and indicated that the money flow of the market is still negative. Based on the daily MFI, the downward pressure is not completed. In normal circumstances, the market is deemed to be in an oversold position only when the MFI falls below the 20-point mark. The weekly MFI turned negative for the near term and ended lower in the negative zones at 41.22 points.  

Exponentially smoothed moving-average price line on daily high and low: The daily MAV-lines trended lower last week and closed on a bearish note. Closing prices below the MAV-low line for the last two days shows that the index is in a bearish phase. Based on the MAV-lines, the CI has an immediate resistance at the 628 and 633 levels. A successful break above these levels would indicate that a trend-reversal has started. 

Stochastics: The daily stochastics turned negative last week and closed with a mild positive convergence to indicate that the index is at a temporary bottom. The daily oscillator per cent K and D ended the week sharply lower at 27.58% and 37.54% respectively. Presently, the daily stochastics have indicated that the index may move into an upward correction. The weekly stochastics stay negative during Friday’s close and signalled that the near-term market trend is negative. The weekly oscillator ended the week negative with the per cent K and D lower at 45.82 and 48.25 % respectively.  

The 3-day and 7-day exponentially smoothed moving-average became negative on April 23 and ended the week on a negative note. The 3-day and 7-day ESA-lines settled the week with the 3-day and 7-day ESA-lines lower at 627 and 629 points respectively. Based on the ESA-lines, the index is not out of its bearish wave yet.  

Relative strength index (RSI): The daily RSI (not shown in the chart) recovered from a weekly-low of 40.60 points on April 24 and ended the week slightly lower in the negative zone at 44.53 points. Analysis of the daily RSI shows that the index’s immediate underlying strength is slightly positive. The weekly RSI settled lower in the negative territory at 38.71 points. Analysis of the weekly RSI suggests that the index’s near term underlying strength is still negative.  

Daily moving-average convergence/divergence (MACD): The daily MACD (not shown in the chart) triggered the sell-signal on April 24 and continue to indicate that the immediate trend of the index is negative. The MACD and trigger-line closed the week lower in negative territory at minus 1.75 points and minus 1.52 points respectively.  

Analysis of this daily oscillator indicator shows that the index may see a little more downside this week. The weekly MACD (not shown in the chart) held on to its buy-signal during Friday’s close and indicated a strong negative convergence, suggesting that the index’ main trend is slightly negative. The weekly MACD ended above the trigger-line and finished slightly lower in the negative zones at minus 10.39 and minus 10.41 points respectively. 

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