Short Term Relief Rally After The Fed’s Move

Weekly Recap

After Wall Street experienced a volatile movement two weeks ago, U.S. stockmarkets started the week on a sideways trend ahead of the Federal Reserve’s scheduled FOMC meeting. The Dow slid 3.63 pts to 18,120.17 pts on Monday, followed by a marginal gain of 9.79 pts to 18,129.96 pts on Tuesday.

As soon as the Federal Reserve concluded the meeting - keeping interest rates unchanged even the economy showed signs of recovering; the Dow cheered with a relief rally with a gain of 163.74 pts to 18,293.70 pts on Wednesday. Follow-through buying interest extended for another day and the key index jumped 98.76 pts to 18,392.46 pts on Thursday as energy shares were focused amid a strong recovery in crude oil prices. However, profit taking activities emerged near the 18,400 level – the Dow reversed and ended sharply lower at 18,261.45 pts (- 131.01 pts) on Friday. Nevertheless, on a W.o.W basis, the Dow gained 141.28 pts.

Meanwhile, share prices on Bursa Malaysia started the week on a negative tone before the Fed decided to leave interest rates unchanged for another session. The FBM KLCI fell marginally by 1.28 pts to 1,651.71 pts on Monday. Selling activities were noted on the FBM KLCI towards an intra-day low of 1,645.18 pts, but with the re-emergence of bargain hunting activities, the key index trended higher to end at 1,655.78 pts (+4.07 pts) on Tuesday.

The FBM KLCI gains were in tandem with the recovery of WTI crude oil prices and energy heavyweights like SapuraKencana and Petronas Chemical were being focused – the FBM KLCI rose 2.95 pts to 1,658.73 pts on Wednesday. Further extension of the short term rally were seen after the Fed decided to stay put on its interest rates position; market sentiments stayed positive as the FBM KLCI jumped 10.93 pts to 1,669.66 pts on Thursday. Overall on a weekly basis, the FBM KLCI gained 18.00 pts.

FBM KLCI Weekly Technical Readings

The weekly MACD Line is slightly below the zero level. The weekly RSI, however, has rebounded above 50.

Despite the daily MACD Line hovering below zero, the daily MACD Histogram has extended another green bar. The daily RSI has crossed above 50.

FBM KLCI Support & Resistance

Last week, the FBM KLCI fluctuated near the 1,660 level as traders were cautious before the Fed’s meeting. As bargain hunting activities emerged throughout the week, the FBM KLCI headed higher towards the next resistance of 1,680 level. With both the daily MACD and RSI indicators suggesting that the positive momentum is intact, further upsides might be seen around the 1,700 level. Meanwhile, support will be anchored near the 1,640 level.

Moving Forward

With the re-emergence of the selling interest after a short term relief rally, the Dow and S&P500 may extend its short term pullback move towards the 18,000 and 2,100 levels respectively over the near term. Meanwhile, share prices on Bursa Malaysia are likely to trend sideways as the FBM KLCI is heading towards the resistance of 1,680 - traders may deploy selling into strength strategy.

Sector focus

The Construction index brokeout above the 290 level as buying interest picked up within construction stocks. The MACD Indicator has issued a Buy signal, while the RSI is trending positively above 50. The next resistance will be envisaged around 294. Meanwhile, support will be seen near 285.

Stocks to focus

ECONBHD – Price experienced a breakout above RM1.58 with high volumes. The MACD Indicator expanded positively above zero. The RSI, however, is overbought. Price may rally towards RM2.00 after a short consolidation. Support will be set around RM1.51.

KIMLUN – Price extended its uptrend intact position above the RM2.12 level with higherthan- average volumes. The MACD indicator expanded positively above zero, but the RSI is overbought. Price may rally towards the RM2.50 level after a mild pause. Support will be pegged around the RM2.00 level.

Source: M+ Online Research - 26 Sep 2016