KLCI to consolidate amidst directionless global markets

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KUALA LUMPUR (May 4): The FBM KLCI is expected to consolidate this week with the 1,830 and 1,800 points as the next major support, while still presenting a buying opportunity.

U.S. shares rebounded sharply on Friday on gains in healthcare and technology stocks, while the dollar rose from nine-week lows on signs that the U.S. economy may be stabilizing.

The Nasdaq snapped a four-day losing streak, while the S&P tech sector gained 1.5 percent and the S&P healthcare sector gained 1.3 percent. Apple shares rose 3 percent and were the biggest boost to the major U.S. indexes.

All major European markets except London, its biggest, were closed on Friday for the May Day holiday, while many Asian markets were also shut. London's FTSE 100 index inched higher on a surge in the shares of Lloyds bank and mining companies.

AffinHwang IB vice president and head of retail research Datuk Dr Nazri Khan said that following the flattish performance of the global stocks and holiday shortened session, he expects the FBM KLCI to stage consolidation weighed down by profit taking on surprisingly poor USA and Japanese GDP growth.

Nazri added that with a quiet economic schedule in the traditionally bearish month of May, focus was likely to remain on catalyst and resolution from G7 meeting in Berlin, Germany on measures to boost global economic growth.

“There appears to be a shift in market sentiment taking place, with caution on renewed Greece-Europe crisis and slowdown in USA as an excuse for profit-taking after the solid March/April equity market rally,” he said.

Nazri, who is also president of the Malaysian Association of Technical Analysts, said that on the technical front, the FBM KLCI had broken two major support at 1860 and 1840, suggesting the end of short term uptrend.

He said key indicators such as Stochastic and RSI were pointing down depicting an uninspiring trading momentum in the market.

“Given the FBM KLCI’s overextended rally after the strong performance last four weeks, we view that the key index will consolidate in the near term.

“The FBM KLCI extended its losses mainly weighed down by Oil & Gas counters as well as investors opted to lock in their profit ahead the long weekend,” he said.  

Nazri said that at the close, the FBM KLCI slid 30 points to settle at 1,834 points on rising volume dragged by oil linked stocks notably SapuraKencana Petroleum Bhd, Petronas Dagangan Bhd, Petronas Chemicals Group Bhd, Bumi Armada Bhd and MISC Bhd.

He said a long solid black candlestick pattern had appeared in the daily technical chart, as the key index broke below the 20-day SMA to indicate that market sentiment has turned negative as expected.

He explained that the MACD indicator had performed a negative crossover the Signal line, while both Stochastics and RSI indicators were heading to south, supporting the bearish view.

“With the poor regional sentiment, we expect the key index to continue trading with 1830 and 1800 as the next major support while 1840 and 1860 as the next resistance.

“From the intermarket analysis perspective, the stronger leadership by economically-sensitive groups (Construction, Technology & Properties) and stronger gain from smaller cap stocks (FBMSmallCap & FBMAce) suggest still healthy momentum in the near term.

“We reiterate that the FBM KLCI remains above its monthly uptrendline and thus any correction is a buying opportunity,” he said.

Nazri said that as for stock picks, he was in favour of buy-on-dips of stocks that benefit from the rising ringgit and rising commodities, such as Cahya Mata Sarawak Bhd, Sunway Bhd, Pavilion REIT, Sunwat REIT, Syarikat Takaful Malaysia Bhd, Malaysia Building Society Bhd, Time Dotcom Bhd, Berjaya Auto Bhd, MBM Resources Bhd, Pharmaniaga Holdings Bhd,  Fraser & Neave Holdings Bhd and Dutch Lady Milk Industries Bhd.