Correction Phase May Extend Further

Weekly Recap

U.S. stockmarkets rebounded at the start of the week following the Banco Espirito Santo bailout by the Portugal Central bank – the Dow advanced 75.91 pts to 16,569.28 pts on Monday. However, the Dow declined 139.81 pts to 16,429.47 pts the following day, led by energy shares on the back of escalating tensions in Ukraine.

Following a mildly positive performance to 16,443.34 pts (+13.87 pts) on Wednesday amid better-than-expected U.S. jobless claims, the Dow succumbed to profit taking activities and was sent lower to 16,368.27 pts (-75.07 pts) on Thursday. Nevertheless, the Dow managed to jump 185.66 pts to 16,553.93 pts on Friday as the tensions between Ukraine and Russia subsided. On a W.o.W basis, the Dow has gained 60.56 pts.

Share prices on Bursa Malaysia traded on a positive tone, in tandem with the overnight performance on the Dow; the FBM KLCI
rose 12.46 pts and 0.89 pts to 1,875.80 pts and 1,876.69 pts on Monday and Tuesday respectively. Selling pressure, however, emerged on the FBM KLCI, led by telecommunication heavyweights – the key index declined to 1,869.92 pts (-6.77 pts) and 1,867.32 pts (-2.60 pts) over the next two trading days. Soon after news that the U.S. authorised air strikes on Iraq, investors panicked and the selling activities escalated on the FBM KLCI. This resulted in the FBM KLCI diving 27.45 pts to 1,839.87 pts on Friday. The key index has lost 23.47 pts last week.

FBM KLCI Weekly Technical Readings

The weekly MACD Histogram extended another red bar, in tandem with the weekly MACD Line. Also, the weekly RSI crossed below 50.

The daily MACD indicator has expanded negatively below zero - suggesting that the momentum is negative. The RSI has drifted lower to below the 30 level.

Continued

FBM KLCI Support & Resistance

The FBM KLCI has stayed above the 1,860 level at the start of the week before it was breached on Friday with a significant selling  pressure. Also, with both the daily and weekly indicators suggesting that the momentum is negative, the key index may decline further towards the next support at the 1,820-1,830 levels. Meanwhile, the resistance will be pegged around the 1,850-1,860 levels.

Moving Forward

With the increased volatility over the past few weeks, coupled with the instability in the Middle East region, investors may further reduce their stockmarket positions. Similarly, sentiments on the local market remain weak on the back of sustained geopolitical concerns which may also mean that share prices on Bursa Malaysia could trade on a downward bias over the near term. However, the gloves sector may be in traders’ radar on the back of the concerns over the Ebola outbreak in West Africa.
Sector focus Despite the selling activities last Friday, the Technology index is hovering above the EMA9 level. The RSI is sustaining above 50. The MACD Histogram, however, has turned red. Resistance will be envisaged around the 20.78 level. Support will be pegged around the 19.34 level.

Stocks to focus

HTPADU – Price has rebounded off the support of the RM0.69 level with improved volumes. The MACD indicator has expanded positively above zero. The RSI has crossed above 50. Resistance may be located around the RM0.79 level.

JCY – Buying support was noted around the RM0.70 level accompanied by improved volumes. The MACD Line has crossed above zero, while the RSI is hovering above 50. Price target could be located around the RM0.79 level. Support will be pegged around the RM0.69 level.

Source: MalaccaSecurities Research - 11 Aug 2014