Bursa to see reversal later this week after further correction

For this week, investors are advised to buy on dip core banking stocks AFG, AMMB, CIMB, Maybank, Public Bank and RHB Capital


FOLLOW-THROUGH profit-taking and selling interest sparked by concerns credit tightening steps locally and abroad will be coming as governments prepare to withdraw stimulus measures introduced during the credit crisis in 2008 forced Bursa Malaysia into correction mode last week.

The blue-chip barometer FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) shed 14.6 points or 1.1 per cent week-on-week to end at 1,296.60, with losses led by core banks CIMB, Public Bank and Maybank and plantation counters Sime Darby and IOI Corp due to profit-taking and as CPO prices tumbled. Daily average volume and value fell to a four-week low of 687.4 million shares worth RM1.14 billion from 880.4 million shares worthRM1.6 billion in the previous week.

The announcement of Astro All Asia's privatisation last week did not come as a surprise as it had been expected for some time. The offer price of RM4.30 which was at a 20 per cent premium to last traded price is fair.

In the absence of fresh catalysts to pump up the index, the correction that we saw last week is expected to continue until the FBM KLCI hits the grossly oversold region and reverses at the later part of this week. So continue to look out for buying opportunities in the key benchmark stocks, especially in the banking sector, as market has the inclination to turn around before the Invest Malaysia that will fall on Tuesday and Wednesday next week.

Externally, the outcome of US durable goods, home sales, consumer confidence and fourth quarter gross domestic product figures this week will be keenly followed. The durable goods data is likely to reinforce the recovery in the manufacturing sector, which will be positive for tech stocks like Unisem, MPI and Uchi.

Technical outlook

Bursa Malaysia shares ended lower on Monday, sparked by persistent profit-taking and selling on selected blue chips on concern domestic interest rates will rise again after Bank Negara Malaysia hinted at another rate hike. By the closing bell, the index lost 11.53 points or 0.88 per cent to settle near the day's low at 1,299.67.

The next two days saw the index trading within a narrow range as bargain hunting was offset by continued profit-taking and selling interest, despite the firmer tone on external markets.

The narrow range trading action persisted on Thursday between 1,307 and 1,300 as the local market lacked catalysts to attract investors back into the market. Local market sentiment turned sour ahead of the weekend, as investors took the cue from speculation the US Federal Reserve might raise its discount rate and China could either raise interest rates or introduce other credit tightening measures to address inflationary risks from the strong economic growth.

The FBM KLCI tumbled from intra-week high of 1,313.36 early Monday morning to bottom out above the week's low of 1,294.87 on Friday trading session to clock a narrower 18.49-point trading range last week, against 25.55 points the previous week.

The daily slow stochastics indicator for the FBM KLCI is set to trigger an early buy signal in the oversold zone, but it is not a confirmed bullish signal yet. The weekly indicator meanwhile had risen to the initial overbought zone, neutralising the daily buy signal. On the 14-day and 14-week Relative Strength Index (RSI) indicators, bearish divergence signals do not augur well for stubborn bulls this week.

Moreover, the daily Moving Average Convergence Divergence (MACD) indicator flashed a fresh sell signal, while the weekly MACD indicator hooked down again to suggest deteriorating trend ahead. As for the 14-day Directional Movement Index (DMI) trend indicator, the +DI and -DI lines are contracting further towards each other, with the ADX line declining to indicate a weakening uptrend.

Conclusion

Save for the daily slow stochastics indicator which flashed an early buy signal in the oversold zone, all other momentum and trend indicators for FBM KLCI are signalling further losses ahead. Thus, investors can expect a continuation of correction at least early this week, before more significant buying support emerges at lower support levels. Moreover, the surprise interest rate increase in India should dampen regional sentiment this week. The absence of positive catalysts ahead of Invest Malaysia next week would also discourage significant investor commitments.

On key chart supports for the FBM KLCI which are likely to attract investors to re-enter, look at the 50-day and 30-day moving average levels at 1,283 and 1,280 respectively to provide good downside cushion, especially upon a decisive breakdown below 1,292, the 38.2per cent Fibonacci Retracement level of the 1,224 trough to 1,334 peak. Note that this support level is reinforced by the 50 per cent FR at 1,279. In the unlikely event of a breakdown of this key support, the 61.8 per cent FR at 1,266 will provide a concrete floor limiting further downside risk.

On the upside, immediate resistance remains at 1,308, the 23.6 per cent FR level, with 1,325 and subsequently the two-year peak of 1,334 of March 11 acting as a formidable upside barrier.


For this week, investors are advised to buy on dip core banking stocks AFG, AMMB, CIMB, Maybank, Public Bank and RHB Capital towards their middle or lower Bollinger bands for medium-term recovery. Continue to bargain Genting Bhd, IOI Corp and Sime Darby as these major laggard blue chips are very low-risk with good long-term reward potential.

In lower liners, rubber glove makers Adventa, Latexx and Supermax are more attractive buys following recent weakness, while Kinsteel, MRCB, Kencana, SapuraCrest, Jaks Resources and Leader Universal are also good buys for further gains ahead.

The subject expressed above is based purely on technical analysis and opinions of the writer. It is not a solicitation to buy or sell.