FBM KLCI (Bearish)

• Although the FBM KLCI maintained its upward momentum for most of last week, reaching a two-year high of 1,632 on Thursday, it dipped sharply on Friday due to renewed concerns over US interest rates and weak regional market performance. Despite this, it closed marginally higher by 0.17% at 1,619.40, led by strong performance in the Construction (+3.3%), Technology (+2.7%), and Energy (+1.6%) sectors. Daily traded volume and value remained robust, averaging over 6b units worth RM4b.

• Looking ahead, the local market direction will likely hinge on corporate earnings as we enter the peak of the final week of the reporting season. Additionally, the Semicon Southeast Asia 2024 conference on Tuesday, hosted by Miti, is expected to outline a comprehensive strategic plan for the local technology sector. Other key economic data to watch include Thursday’s updated US GDP estimate and Friday’s release of the core PCE index, the Fed's preferred measure of inflation, which could potentially move markets.

• Technically, the index has experienced a strong rally since January, achieving a YTD gain of 11.3% after breaking out from its 5-month consolidation zone formed since July 2023. However, this rally may be due for a review this week, as a shooting star candlestick pattern has appeared on its weekly charts, signaling a potential trend reversal. Additionally, as noted in our last review, the SmartMCDX, which measures buyer (banker) activity based on volume and price movement, has approached the 15 threshold, indicating that buyer activity may soon be exhausted. The weekly stochastic and RSI indicators remain in the overbought zone, further suggesting that a short-term correction is imminent.

• In summary, we expect long-overdue profit-taking to kick in this week, with immediate support levels at 1,615 and the psychological level at 1,600. The upward trend will remain intact as long as the index stays above the critical 5-week SMA level (around 1,584). Conversely, breaking above the recent high of 1,632 could propel the index to test the next resistance level at 1,647.

Source: Kenanga Research - 27 May 2024