REVIEW: Expectations of an early-stage trade deal between the US and China coming to the table reached fever pitch, extending the bullish outlook on the domestic market this week.
Sustaining the advance made over the previous week, the FBM KLCI made several attempts to break free of the 1,600-point mark although a lack of confirmation meant the market was entering a wait-and-see period before embarking on further gains.
Between the gravitational pull of the resistance-turned-support of 1,600 and the downwards pressure of the overhead 100-day simple moving average (SMA), the market was held in consolidation mode.
Brief breaches below 1,600 was common over the trading days although the market managed to close each session above the line.
Talk that not only was Washington considering postponing the tariffs on US$156bil of Chinese goods scheduled for Dec 15 but might roll back some existing tariffs sent global equities to their highest in six months.
US indices showed the most optimism as the Dow Jones and Nasdaq broke fresh records in Tuesday night trading.
Nevertheless, such a rapid advance on positive sentiment was bound to hit a ceiling, pending further confirmation.
The first signs of consolidation hit regional markets, and the domestic market, on Wednesday. That the profit-taking was mild was testimony to the conviction over the recent progress in the trade talks.
The ringgit also experienced some profit-taking. The local currency had made six consecutive sessions of gains over the US dollar on expectations that an easing of the trade war would bring traders backs to emerging currencies.
The currency hit 4.1290 at the end of the Tuesday session, marking its strongest level against the greenback since end July. By Wednesday, some return to the US dollar was inevitable and the ringgit closed at 4.1350 although its growth trend remained intact.
That same day, Bank Negara’s announcement that it was maintaining the overnight policy rate came as expected, serving to keep the status quo.
At Wednesday’s close, the FBM KLCI was down 3.49 points to 1,603.25.
By this stage, the technical indicators were flashing overbought signals. With the profit-taking activity, the momentum had begun to slow and slow-stochastic showed signs of neutralising.
Coupled with a late Wednesday report by Reuters that the signing of the “Phase One” trade deal might be delayed as administrators worked out certain terms and a venue for the meeting, the rally was at risk of halting in its tracks.
Indeed, on Thursday, Bursa Malaysia hugged the 1,600 mark for much of the morning session. The market turned sharply higher in the afternoon session as a Chinese government spokesperson confirmed it had agreed with the US roll back trade tariffs, although the magnitude of the initiative was yet to be determined.
The FBM KLCI ended 6.08 points higher at 1,609.25, defying the lack of interest displayed earlier in the day.
With the positive catalyst at play, US markets broke fresh new highs overnight paving the way for Asian markets to rally into the end of the week.
Yesterday, the rally was was halted on profit-taking with the index spending much of the session in the red. Nevertheless, a push in the final hour of trading sent the FBM KLCI slightly higher at 1,609.73.
Statistics: The major index ended the week 16.39 points, or 1%, higher over the previous Friday, at 1,609.73. Total turnover for the trading week stood at 13.61 billion shares amounting to RM9.88bil compared with 10.31 billion shares worth RM7.95bil over the previous four-day trading week.
Outlook: The rally on the FBM KLCI put it within striking distance of the 100-day SMA, of which a positive crossing would suggest growing bullish sentiment.
While the indicators had been showing signs of being overbought with consolidation likely to ensue, the fresh buying lead that entered the market this week kept it rising.
Following the week’s gains, the share crossed a 38.2% Fibonacci retracement level in the ongoing recovery.
At present, the technical indicators are showing mixed signals. The slow-stochastic has showed signs of slowing down as it curves lower from overbought territory and triggers a “sell” signal.
This suggests a slide towards a consolidation phase although the current short-term uptrend remains intact with the daily moving average convergence/divergence line rising higher in positive territory.
The 14-day relative strength index also shows growing momentum, lending a case for continued increases on the FBM KLCI.
Resistance is fast approaching at the 1,625 mark while further resistance can be found at 1,660.
Support for the stock can be seen at 1,600 with the 50-day SMA rising under it to offer further support. Lower support can be found at the 1,570 level.
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