Trapped in a narrow band

  • Stocks Analysis
  • Saturday, 04 Jan 2020

REVIEW: The heavy profit-taking on the final trading day of the year was a disappointing blip in what was otherwise a bullish year-end on the domestic market.

However, that did not dissuade investors from returning to the markets in the opening days of 2020, in what was a bid to continue the rally seen towards the end of 2019.

The year-end optimism was seen across global markets and was most clearly signaled by US equities, which rallied to record highs on the easing trade tensions between the US and China.

Asian markets were more tentative, but positive nonetheless, reaching 18-month highs amid rising Chinese equities.

There was continued good news at Monday’s open – the second-to-last day of 2019 trading – as investors revelled in healthy profits in China’s industrial sector. This came amid policymakers suggesting that a signing of a phase-one trade deal with the US would take place soon.

Window dressing

On the domestic market, Bursa Malaysia extended its gains as it capitalised on year-end window dressing and optimism over economic growth in the new year. The FBM KLCI rose to a four-month high and approached the 200-day simple moving average (SMA) overhead.

However, the index closed 5.06 points higher at 1,615.67, short of breaching the resistance. In failing to overcome the hurdle, profit-taking was to be expected in the next session as investors finalised their positions for the new year.

This expectation was compounded by the negative performance on Wall Street overnight. US markets snapped a rally as investors turned to cashing in on their recent gains following the hot streak in equity prices.

On Tuesday, without any fresh catalyst to keep the rally going, investors took to caution. The MSCI Asia-Pacific Index ex-Japan fell 0.5%, taking a notch off what was a 16% advance over the year.

Starting in negative territory, the FBM KLCI lost points over the course of the day. By market close, the index had plunged 26.91 points to 1,588.76 to rest on the 50- and 100-day SMA support levels.

Foreign investors led the selldown, turning net sellers of RM196.2mil of local equities.

This dashed investor expectations for a 2019 close above the 1,600 mark. One consolation was the resilience of the 50-day SMA, which suggested a rebound was set to take place as the market reopened for business after the new year celebration.

Overnight, Wall Street ended its new year’s eve on a rebound even as US President Donald Trump announced he would sign the US-China trade deal on Jan 15.

Come Jan 2,2020, the first day of trading started on a bright note as China’s central bank made an earlier-than-expected cash injection while Asia’s manufacturing data proved positive.

Malaysia’s manufacturing purchasing managers’ index for December rose to its highest since September 2018, setting the stage for a bullish trading day.

The market rebounded 13.74 points to 1,602.50, reclaiming half the losses of the previous session.

On Friday, the FBM KLCI tracked Wall Street’s positive performance overnight, which showed the continuation of the 2019 rally into the new year.

News emerged that the US had launched an airstrike in Baghdad, killing a top Iranian general and an Iraqi militant leader, leading to a surge in oil prices.

The FBM KLCI retraced some gains as regional equities faltered on fears of escalating military tensions. The index ended 8.88 points higher at 1,611.38.

Statistics: The major index ended the week a marginal 0.77 point higher over the previous Friday, at 1,611.38.

Total turnover for the four-day trading week stood at 11.53 billion shares amounting to RM7.61bil compared with 7.66 billion shares worth RM5.05bil over a similarly shortened previous trading week.

Outlook: The decline and rebound on the FBM KLCI over the last four trading days place the index within a consolidation channel as it remains trapped below the 200-day SMA.

Over the coming session, it would be crucial to see the index make a challenge to the 200-day SMA to revive the recent rally. A positive breach and resumption of a rally could see the share approach the 1,650 resistance.

Short of crossing the hurdle, a return to a bullish trend remains unconfirmed and the share could idle along the trading channel as it awaits further developments.

Based on the daily price chart, the index finds immediate support at the 1,590 mark, a negative crossing of which would see it return below the key SMAs and turn the outlook negative.

Stiffer support is found at 1,570 and 1,550 below that.

The technical indicators remain neutral at present as the slow-stochastic has fallen closer to the 30-point line to record weakened momentum although the daily moving average convergence/divergence line remains in positive territory.

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