Gains to be limited by profit taking

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KUALA LUMPUR (May 6): The FBM KLCI is expected to be cautious today and possibly trend lower on profit taking in line with the sharper lower close overnight.

U.S. stocks finished sharply lower on Tuesday after a surprisingly wide March U.S. trade deficit raised concerns that the economy shrank in the first quarter, according to Reuters.

The $51.4 billion March deficit was the highest in nearly 6-1/2 years and larger than the $45.2 billion the government assumed in its snapshot of first-quarter gross domestic product last week, suggesting the economy had contracted, it said.

AllianceDBS Research in its evening edition Tuesday said despite the higher opening level on May 5, the FBM KLCI turned weak as the day progressed.

The research house said the benchmark index held its position near the low end throughout the trading sessions before rebounding to settle near the day’s high at 1,827.42 (+9.15, +0.50%) in the last few minutes of the trading day, driven by buying of selective blue chip stocks.

“In the broader market, losers outnumbered gainers with 434 stocks ending lower and 362 stocks finishing higher. That gave a market breadth of 0.83 indicating the bears were in control,” it said.

AllianceDBS Research said the higher opening level at 1,830.32 was a good attempt to push the market above the 50-day MA line after the recent declines.

However, the research house said there was no follow through buying to carry the benchmark index higher than the day’s high of 1,830.39.

It said the inability of the market to elicit stronger buying interest induced further profit taking activity which pulled the market back down to a low of 1,818.16.

“Following the rebound to settle the market with an up close, the benchmark index is still expected to test lower levels with immediate support at 1,818.

“A downside penetration of 1,818 could send the market down to 1,800. The overhead resistance zone is pegged between 1,830 and 1,840,” it said.

The research house said that indicator wise, the MACD was below the 9-day moving average line.

“The analysis of overall market action on May 5 revealed that buying power was weaker than selling pressure.

“As such, the FBM KLCI would likely trade below the 1,819.07 level on May 6,” said AllianceDBS Research.