KLK may undergo further correction

SHARE prices on Bursa Malaysia slipped back into technical pullbacks last week. The Kuala Lumpur Composite Index (KLCI) continued to stay above its major psychological support of 1,100 points when it closed at 1,105.04 last Friday.

Last Friday, plantation stocks took a beating on investor concern over easing crude palm oil prices.

A local investment bank, in its latest research report last week, had an “underweight” call on the plantation sector. The bashing of plantation stocks weighed down the KLCI.

The benchmark index tumbled from its intra-week high of 1,148.70 last Monday to its intra-week low of 1,100.19 last Friday, giving an intra-week trading range of 48.51 points.

The KLCI eased back to close at 1,105.04 points last Friday, posting a week-on-week loss of 45.35 points, or 3.94 per cent.

The FTSE Bursa Malaysia Second Board Index fell 71.83 points, or 1.34 per cent, to 5307.07 level while the FTSE Bursa Malaysia Mesdaq Index lost 105.61 points, or 2.46 per cent, to 4,192.21 level.

On the foreign front, share prices in New York rebounded on easing crude oil prices last week.

The Dow Jones Industrial Average (DJIA) closed at 11,496.57 points last Friday, giving a week-on-week gain of 396.03 points, or 3.57 per cent.

The tech stock heavy Nasdaq Composite Index moved in tandem with the general market trend. It closed at 2,282.78 points last Friday, giving a week-on-week gain of 43.70 points, or 1.95 per cent.

The Hong Kong stock market bucked the trend in the Dow. The Hang Seng Index staged a weekon- week loss of 310.36 points, or 1.40 per cent, to close at 21,874.19 points last Friday.

In Tokyo, the stock market extended its rangebound consolidations last week. The benchmark Nikkei 225 Index closed at 12,803.70 points last Friday, giving a week-on-week loss of 235.99 points, or 1.81 per cent.

Back on Bursa Malaysia, Kuala Lumpur Kepong Bhd (KLK) was one of biggest casualties in the plantations sector. Its share price closed at RM13.80 last Friday, a week-on-week loss of RM1.70, or 10.97 per cent.

Here are the readings of some of its technical indicators:

Moving Averages: KLK’s daily price trend breached the support of its 10-, 20-, 30-, 50-, 100- and 200-day moving averages.

Momentum Index: Its shortterm momentum index stayed decisively below the support of its neutral reference line last week.

On Balance Volume (OBV): Its short-term OBV stayed below its 10-day moving averages.

Relative Strength Index (RSI): Its 14-day RSI continued to stay above its 30 per cent level. Its technical reading stood at the 17.95 per cent level at the market close last Friday.

Outlook

Following the local investment bank’s “underweight” call on the plantation sector, plantation stocks are likely to encounter institutional investor sell-down pressure. KLK is one of the plantation heavyweights that will need to weather the storm ahead.

Chartwise, KLK’s monthly price trend continued to stay precariously above its long-term uptrend.

Further pullbacks will signal the termination of the multi-year long-term uptrend.

KLK’s weekly price trend staged a technical breakdown of the support of the neckline (See KLK’s weekly price trend (C A3:A4) of its double-top pattern formation last week. Its weekly price trend had also breached the support of its intermediate-term uptrend (A1:A2) last Friday.

Last week, its daily price trend staged a decisive breach of the neckline (See KLK’s daily chart (C B3:B4) of its double-top pattern formation on July 8. Last Friday, its daily price trend staged a technical breakdown of the neckline (B1:B2) of its larger double-top pattern formation.

KLK’s daily, weekly and monthly fast MACDs (Moving Average Convergence Divergence) continued to stay below their respective slow MACDs last Friday.

With that, it added credence to KLK’s intermediate-term correction.

Its 14-day Relative Strength Index (RSI) stood at the 17.95 per cent level. Its 14-week and 14- month RSI were at the 35.44 and 52.96 per cent levels respectively.

Following the breakdown of its bearish pattern-in-pattern formations last week, KLK is on track to trace out the technical potential of its pattern retracement objective .

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