Market stays positive ahead of support

  • Markets
  • Saturday, 23 Nov 2019

REVIEW: The white noise and confusion surrounding the US-China trade talks continued to have a choke-hold on the performance of the equities market, with the current turning against a speedy resolution.

On the domestic scene, the FBM KLCI is being held in a consolidation phase with trading action over the past week kept within a 20-point range. By yesterday’s close, the index was little changed.

The political turmoil and violence in Hong Kong became a hot-button topic on the discussion table between the US and China as the US Congress passed two bills supporting the protestors and chastised China for what it deemed human rights abuses.

As the goodwill deteriorated between the two nations, so too did the prospect of a “phase one” trade deal that had seemed agonisingly close.

There was trading optimism at the start of the week in line with the positive mood cultivated by a White House official over the weekend.

The FBM KLCI jumped 9.61 points to 1,604.36 on Monday as it picked up on the bullish vibes. Having left the 1,590 support intact in the previous week, the index rebounded above the critical resistance, and reignited hopes for the continuation of a rally.

Adding fuel to the positive sentiment was the move by China’s central bank to cut rates on a key interest rate, which pushed the yuan higher.

The rate reduction of the seven-day reverse repurchase agreements signalled that Beijing was considering further stimulus for its economy, offsetting some of the negative impact of the protracted trade war.

The buying sentiment showed signs of tapering on Tuesday as investors awaited confirmation of Chinese stimulus measures and further details on the US-China trade talks.

The local market pushed slightly higher by 0.95 points to 1,605.31 to suggest the start of sideways channel. An uneventful Wednesday session confirmed the lack of price movement.

However, it was news of the growing conflict over the fate of Hong Kong that finally unnerved investors.

The signing of bills in the US House of Representatives throwing its support behind Hong Kong protestors was all but certain to prolong the signing of the first-stage trade resolution.

By Thursday, the FBM KLCI plunged over 13 points at its lowest with nearly all the heavyweight counters on the index flashing red.

The pullback is synchronous with the rest of the region, as investors hurried to cash in their gains in light of the latest roadblock in the trade talks.

By market close, the market ended deeply in the red with 8.95 points taken off to 1,592.19.

It remained a positive signal, however, that despite having breached the 1,590 mark in intra-session trade, the index ended the day above the support.

Yesterday, the index spent much of the afternoon in positive territory as investors retraced losses leading into the weekend.

A jump in the final hour of trading saw the index challenge the 1,600 mark but in failing to breach, ended the week at 1,596.84.

Statistics: The major index ended the week 2,09 points, or 0.1%, higher over the previous Friday, at 1,596.84.

Total turnover for the trading week stood at 13.41 billion shares amounting to RM9.18bil compared with 11.9 billion shares worth RM8.56bil over the previous trading week.

Outlook: Similar to what was seen in the previous week, a late-week retreat on the FBM KLCI was halted at the 1,590 mark. Barring a negative breach of this level, the index can be seen holding on to a consolidation phase, rather than embarking on a downtrend.

The nearby 50-day SMA has also proved to be a crucial support at this time, with the index consistently trading above it. So long as the moving average holds moving forward, bullish sentiment should remain on the market.

Despite the onset of bearish sentiment in the later half of the week, yesterday’s positive performance is heartening to note, suggesting that short of fresh details or confirmation over the US-China trade talks, investors are unwilling to give in to the bears.

The technical indicators are confirming a consolidation phase as the slow-stochastic shows falling momentum while the daily moving average convergence/divergence line is holding in positive territory, indicating that a positive trend remains at play.

Overhead, the immediate resistance can be seen at 1,600 points. The descending 100-day SMA is seen hovering nearby at 1,609, applying negative pressure on a further advances past this point.

A positive crossing of the moving average would signal a return of bullish sentiment and a possible advance towards 1,625.

On the lower end of the price chart, the index remains afloat of 1,590, with the 50-day SMA offering further support.

Next support can be found at 1,570.

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