The local stock market recovered from a mid-week selloff sparked by external volatility after Greece backtracked and cancelled a proposal to hold a referendum on a second bailout package hammered together by eurozone leaders for the heavily debt-laden country, and after the European Central Bank announced a surprise cut in its key interest rate.

The blue-chip benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) eased 4.31 points, or 0.3 per cent, to close the week at 1,477.51, with falls in Maybank (-12 sen), Axiata (-9 sen), CIMB (-10 sen) and Sime Darby (-10 sen) offsetting gains in DiGi.com (+RM1.80) and Genting Bhd (+20sen). Average daily traded volume and value increased to 1.63 billion shares and RM1.43 billion respectively, compared with 1.486 billion shares and RM1.77 billion in the previous week, boosted by strong interest in ACE Market which emerged late in the week.

External news will continue to dominate local market direction with Europe, the US and China having their own set of issues that would affect the global economy. Greek Prime Minister George Papandreou’s actions triggered a volatile week for equities around the globe. He proposed to hold a referendum on the terms of a second bailout for Greece by the eurozone countries and then made an about turn hardly two days later.

Although he survived a confidence vote in Greek’s 300-member parliament last week with 51 per cent support, he still needed to garner support from 60 per cent of the lawmakers to secure an agreement on the aid before the European finance ministers meeting in Brussels today. An agreement would provide some support for the market to kick start the week on a positive note and vice versa.

On the US front, while the jobless rate unexpectedly fell in October to 9.0 per cent against the forecast 9.1 per cent, payrolls rose by only 80,000 against a consensus forecast of 95,000 after an upward revision for the prior two months, reinforcing Federal Reserve chairman Ben Bernanke’s frustrating outlook for the US economy. If hirings do not pick up fast enough, consumption will be affected along with private investments and imports from other nations.

Thus, Malaysia’s stronger-than-expected exports for September could be seasonal to cater for Christmas and New Year orders than any actual upward shift in demand. September exports advanced by 16.6 per cent year-on-year (or 0.2per cent month-on-month) to RM58.7 billion in September, which was higher than consensus growth forecasts of 12.1 per cent. It was driven by growth in most major sectors, particularly the shipments of E&E products that rose by 2.6 per cent year-on-year (or 0.9 per cent month-on-month) to RM20.36 billion contributed by higher exports of integrated circuits and transistors.

Using global chip sales tracked by the Semiconductor Industry Association as a barometer for industry trend, one can notice that chip sales are heading for a protracted down cycle after being compounded by various issues around the globe. Chips sales contracted for a third consecutive month on a year-on-year basis in September and similar year-on-year corrections were witnessed during the dotcom bubble and US subprime crisis. The corrections during the technology bubble in 2001 and subprime crisis in 2008 lasted for 16 months and 13 months respectively before recovering.

Thus, this could be a prelude to softer external demand ahead and technology stocks could continue to underperform the broader market although the Thai flood helped to provide some short-term relief after worries about parts shortage from the flood-trapped nation boosted demand for some local stocks. To sustain the economic growth trajectory, the government would continue to focus on domestic sectors especially construction, oil and gas, and tourism which will have spill over affect into other services sector like banking and transportation.

Remain neutral on the market and suggest investors continue to trade cautiously with a short-term view in this bear market rally.

Technical outlook

In FBM KLCI futures, new spot month contract November traded on Bursa Malaysia Derivatives added 3.5 points, or 0.24 per cent last week to 1,480, reversing to a 2.5-point premium to the cash index, compared with the 5.32-point discount the previous Friday.

In spite of weaker regional markets after China’s premier vowed to maintain property lending restrictions, shares on Bursa Malaysia extended gains on Monday afternoon trade as bargain-hunting interest was sustained. The FBM KLCI ended up 10.07 points at 1,491.89, off a high of 1,493.28.

Stocks fell in a correction the next day in line with the region on slower manufacturing growth in China and as the Greek prime minister proposed that voters decide on accepting Europe’s latest aid package for the country. The FBM KLCI lost 16.25 points, or 1.1 per cent , to settle at 1,475.64, off an early high of 1,485.9.

The local market recovered from earlier losses on Wednesday as concerns a Greek referendum would threaten the latest bailout package were offset by hopes China will ease monetary policy to stimulate growth. The FBM KLCI went down 4.69 points to close at 1,470.95, off an early low of 1,457.5.

Stocks fell along with the region the following day as European leaders withheld aid to Greece ahead of a referendum on the bailout package, and as the US Federal Reserve lowered the US growth forecast for next year. The FBM KLCI lost 8.58 points to settle at 1,462.37, off a low of 1,452.64, as losers beat gainers 524 to 226 in active trade of 1.75 billion shares worth RM1.14 billion.

The market bounced back ahead of the weekend, buoyed by overnight gains in the US and Europe as Greece moved closer to a bailout after cancelling the referendum and the ECB announced a surprise interest rate cut to boost eurozone growth. At the close, the FBM KLCI was up 15.14 points, closing at the day’s high of 1,477.51, off an early low of 1,468.09, as gainers swarmed losers 591 to 194 in very active trade totalling 2.3 billion shares worth RM1.51 billion.

The trading range for the FBM KLCI was 40.64 points last week, matching the 40.08-point range in the previous week.

Among other indices, the FBM-EMAS Index slid 45.21 points, or 0.45 per cent, to 10,072.15, while the FBM-Small Cap Index shed 40.34 points, or 0.35 per cent, to 11,460.93.

On technical momentum indicators, the daily slow stochastics for the FBM KLCI is still hovering in the overbought region after flashing a sell early last week, but the weekly indicator maintained a positive reading with a hook-up just above the oversold line. The 14-day Relative Strength Index (RSI) indicator also retained positive reading at slightly below 60, while the 14-week RSI has levelled off near 50.

On trend indicators, the daily Moving Average Convergence Divergence (MACD) signal line has also levelled off to signal trend consolidation, but the weekly MACD signal line hooked up and is poised to trigger a buy signal soon. However, the 14-day Directional Movement Index (DMI) saw the -DI line hovering above the +DI line on declining ADX line, suggesting a non-trending market.

Conclusion

Except for the positive readings on weekly slow stochastics and MACD indicators, all other technical indicators point to a likely consolidation this week. Lingering concerns over the eurozone debt situation, in spite of the cancellation of the proposed referendum on Greece’s bailout package, could also act as sentiment dampener this week. Chart wise, nonetheless, blue chips such as CIMB and RHB Capital are quite attractive to accumulate at current prices for decent upside potential by year-end, while lower liners like DRB-HICOM, Muhibbah Engineering, Perisai and Perdana Petroleum are good bargain buys for further share price appreciation in the medium term.

As for the index, immediate resistance is retained at 1,488, the 61.8 per cent Fibonacci Retracement (FR) of the selloff from the 1,597 record high of July 11 to the recent pivot low of 1,310 on September 26, and next at last Monday’s high of 1,493. Going forward, a breakout would see stronger resistance from the 100-day and 200-day moving averages at 1,491 and 1,510 respectively, being challenged, while the 76.4 per cent FR at 1,529 would act as a more formidable upside barrier. Immediate support on profit-taking dips stays at 1,454, the 50 per cent FR, with better retracement support at 1,420, the 38.2 per cent FR, followed by 1,400 and then 1,378, the 23.6 per cent FR. –BTimes

The subject expressed above is based purely on technical analysis and opinions of the writer. It is not a solicitation to buy or sell.