PETALING JAYA: The jury is still out as to whether small-cap stocks are truly out of the woods, with sentiment still shaky, according to some analysts.
Chartists have mixed views on small-cap stocks and some point to technical indicators as showing an overbought indicator on some 90% of the small-cap stocks on Bursa Malaysia.
A technical analyst with a bank-backed research house said there was a chance of a downside bias in the couple of weeks ahead, but did not rule out that sentiment could turn around if buyers were aggressive enough to overcome this potential weakness.
“The indicators are showing an overbought indicator, but we would like to look at price movements on an overall basis.
“There is a possible right shoulder pattern forming on the small-cap index, and if this is realised, then it could be a sign of more weakness ahead,” the technical chartist said.
“If the bulls can overcome this weakness, then the small caps will move up even higher,” he pointed out.
Commenting on this, Maybank Investment Bank’s technical chartist Nik Ihsan Raja Abdullah said buying support could emerge soon for the FTSE Bursa Malaysia Ace Index, given that it is hovering near a key support level.
“The FBM Ace Index hit a high of 6,888 in July before correction kicked in. The benchmark subsequently sank to a low of 6,302, which is near to the 61.8% Fibonacci Retracement level and ‘Ichimoku Cloud’, but was quick to bounce back,” Nik Ihsan said in the research note yesterday.
“In the past, the FBM Ace Index had been well supported by its 60-day exponential moving average line and we believe history could repeat itself. With the Stochastic indicator staging a positive crossover, we believe the bull is slowly gaining strength. Upper resistance is at 6,888 while support is at 6,070,” he added.
Fundamental analysts, however, noted that the economy was just coming out of a long period of lull and this justified the higher valuations seen on the local bourse.
Interpacific Research’s head of research Pong Teng Siew said that from a technical perspective, the “wind has been let out of the bag” from the small-cap stocks in general, given that these stocks had taken a breather between mid-May to the third week of June.
“If you look at the FBM Fledgling Index, which I monitor closely as it contains some 400 small-cap stocks, it is not that overbought.
“I get the sense a couple of factors are still weighing down the small caps such as poor domestic sales, as local consumer spending is still very weak,” Pong told StarBiz.