Uptrend intact on mild consolidation

  • Business
  • Saturday, 06 Jul 2019

REVIEW: The bullish vibes from the trade truce struck between Washington and Beijing helped to reinforce the local market’s current uptrend.

Global equities experienced a lift at the start of the week’s trading in the wake of the US promise to suspend further tariffs on Chinese goods while easing restrictions on Huawei.

In return, China considered purchasing US agricultural goods as a show of goodwill while negotiations are ongoing.

With external headwinds seemingly easing and some measure of strength returning to emerging market currencies, investors regained confidence in local equities in the belief that foreign funds will flow into this region of the world.

Also helping to prop up equity prices was the growing prospect of a policy rate cut by the Federal Reserve in July, which would spur equity prices.

Weak private-sector job data released on Wednesday lent support that the US economy was slowing, and would go towards the argument for an interest rate cut.

Earlier that day, it was also reported that IMF head Christine Lagarde had been nominated by EU leaders as Mario Draghi’s replacement at the helm of the European Central Bank, which grew expectations of monetary easing in the bloc.

Lagarde is seen as likely to support Draghi’s earlier comments that falling inflation in the eurozone may be rescued by more quantitative easing.

Over in the US, equities were on a tear in the lead up to the Fourth of July celebrations.

Investors showed a sustained enthusiasm for the trade developments at the G20 summit, pushing the S&P 500 and Dow Jones Industrial Average to record-breaking highs.

Back home, the FBM KLCI extended the previous week’s uptrend, jumping over Monday and Tuesday and crossing the immediate resistance of 1,690.

However, the 1,690 mark proved a stubborn hurdle to overcome.

Despite reaching as high as 1,694 in intra-day trade, by Friday the index was still held in thrall by the obstacle, denying further progress to the psychologically important 1,700 mark.

This could boil down to the fact that despite calling a time-out on the trade war, existing trade tariffs were left in play and would make their impact on the global economy.

Nevertheless, in Bursa Malaysia, prices were seen undergoing only a mild consolidation after the two days of healthy gains.

On Wednesday, the FBM KLCI posted a marginal retreat of 0.95 points to 1,689.25 after a late push to keep the market on its uptrend.

Foreign funds continued to shore up the market, turning net buyers for the fifth straight session.

The resilience of the local market was especially heartening as other Asian markets did not fare as well due to a return to trade caution and China’s services sector revealed slumping data.

Volatile oil prices also lent to the uncertainty as Brent crude had plunged over 4% on Tuesday night on global demand fears but rebounded on Wednesday.

On Thursday, domestic export data for May showed year-on-year growth of 2.5%, which was lower than the 3.9% average estimate of a Reuter’s poll. The FBM KLCI slid but kept losses contained to 2.57 points to 1,687.48.

The consolidation picked up pace on Friday, in large part due to a sell-off in Tenaga Nasional as it was reported that the commercial operation of its 1,000MW ultra-supercritical coal-fired power plant in Jimah, Negri Sembilan, would be pushed back.

At market close, the FBM KLCI was down 4.95 points to 1,682.53.

Statistics: The major index ended the week 10.4 points or 0.6% higher over the previous week, at 1,682.53. Total turnover for the trading week stood at 14.56 billion shares amounting to RM10.22bil compared with 8.76 billion shares worth RM8.57bil over the previous week.

Outlook: In failing to convincingly break out of the 1,690 resistance, the FBM KLCI resumed a downwards trajectory and slipped below the 200-day SMA in yesterday’s trading.

However, the index stayed afloat of the 14-day SMA as well as the short-term ascending trend line. The rising 14- and 21-day moving averages are seen to offer lift to the share over the coming term.

Ending yesterday on the trend line, should the FBM KLCI manage to bounce off in the coming session and head higher, there is a probability that it will finally break out of the 1,690 resistance and head towards the 1,700-point mark. The consolidation seen over the final three days of the week is reflected in the weakening momentum in the technical indicators.

The slow-stochastic has fallen while the daily moving average convergence/divergence (MACD) line also shows a retreat towards the signal line. Short of crossing under the signal line, the MACD remains at an uptrend, lending support to a rebound in the coming week.

Should there be a breach of 1,700, the index will head towards the next resistance of 1,709 and onward to the February high of 1,733. Immediate support for the stock can be seen at 1,656 while further support is pegged at 1,626.

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