KL stocks may slump on ‘dead cross’

 

Malaysia’s stocks are set to extend their four-day decline after the benchmark index formed a so-called dead cross, according to RHB Research Institute Sdn Bhd.

The FTSE Bursa Malaysia KLCI Index’s 10-day moving average has fallen below the 40-day moving average since February 4, creating the dead cross pattern, a short-term moving average falling below a longer-term one points to a market retreat.

“This is the first confirmation of a bear signal for the medium term,” Khoo Ban Yu, a technical chartist at RHB said in a phone interview today. “This is a medium-term sell signal.” He defines medium term as one to three months.

RHB joins broking houses including OSK Research Sdn Bhd in predicting further declines in Malaysian stocks, ending a rally that lasted almost a year.

The Kuala Lumpur stock index surged 45 per cent in 2009 on investor optimism Prime Minister Najib Razak’s stimulus plans valued at 67 billion ringgit (US$20 billion) will pull the economy out of recession.

The stock index slid for a fourth day, losing 0.4 per cent to 1,230.43 as of 3.10 pm in Kuala Lumpur, set for the lowest close since October 8. The drop was led by the biggest banks such as CIMB Group Holdings Bhd. and Public Bank Bhd.

The market is “vulnerable to further downside pressure,” Khoo said. “Undermined by the depressed short-term momentum readings, we expect further downside risk in the near term.”

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index. Support is a level where buy orders may be clustered, while resistance is where there may be sell orders. - Bloomberg