REVIEW: The FBM KLC remains in a sideways trading channel, capped by uncertain market sentiment, despite a strong rebound yesterday. However, the positive performance helped to dispel fears of further declines as the index had exited below the 200-day simple moving average (SMA) just a day earlier.
During the first half of the week, the FBM KLCI stayed afloat of the 200-day SMA, which investors had clung to following a correction in the first week of May.
At market open on Monday after three consecutive sessions of losses, the moving average served as a platform for bargain-hunting activity, alleviating some of the selling pressure on the local market.
It was only a brief reprieve, however, as the consolidation phase remained firmly in place with subsequent profit-taking taking the index lower over subsequent days.
There was some anticipation over the government’s late-Tuesday announcement as the National Recovery Plan offered more clarity on the lockdown plans. However, it failed to generate excitement among investors, given that its rollout was, rightly, dependent on the decrease in the number of daily coronavirus infections.
The start of Phase 2 of the plan requires the number of daily Covid cases falling below 4, 000. Yesterday, the number of daily coronavirus infections remained elevated in the mid-6, 000s.
Compounding the selling pressure in equities, the US Federal Reserve signalled at the end of its monetary policy meeting that it might be raising interest rates sooner than many had anticipated.
Given the rapid pace of recovery in the US economy and rising inflation, the central bank hinted that it could make a return to higher lending rates as soon as 2023.
The news came as unexpected as observers believed the current spike in inflation was temporary, coinciding with the sudden reopening of the economy.
Reacting to the possible end of easy money, foreign funds retreated from riskier assets while the ringgit fell against the US dollar. Over two days, the ringgit shaved half a percent against the greenback to 4.14.
The downside to sentiment was clearly reflected on Thursday’s price chart as the FBM KLCI shed 7.46 points to 1, 570.86, its lowest close in nearly a month.
Yesterday, there was some bargain-hunting as investors struggled to return the index above the 200-day SMA. A surge in buying in late-afternoon trading saw the FBM KLCI ending the day with a firm performance, 18.19 points higher at 1, 589.05.
Statistics: The major index ended the week 13.89 points or 0.8% higher over the previous Friday at 1, 589.05. Total turnover for the trading week stood at 28.12 billion shares amounting to RM18.25bil compared with 22.95 billion shares worth RM13.07bil in the previous four-day trading week.
Outlook: The FBM KLCI managed to return above the 200-day SMA in a convincing fashion in late trading yesterday. However, the index remains caught within a narrow trading channel below the 1, 600 psychological resistance.
In the coming week, investors could be looking to cash in on profits from the sharp surge in the recent session.
The advance, however, helped to dispel notions that the FBM KLCI was due to resume its correction. Should the buying interest resume after a brief period of profit-taking, there could be an attempt to cross over the 50 and 100-day SMAs overhead, in an attempt to reach 1, 600.
The slow-stochastic is looking healthy, having inched over the 50% mark while the 14-day relative strength index is looking more bullish at 57 points.
The daily moving average convergence/divergence line, meanwhile, is inching higher past the signal line although a more convincing crossing would be needed to confirm a “buy” signal.
The 200-day SMA continues to offer support while more significant support can be found at 1, 560.