DOWNSIDE PRESSURE: Investors may stay sidelined as US Fed tapering and debt ceiling remain unclear
Bursa Malaysia's blue chips, especially banking stocks, suffered profit-taking correction last week amid uncertainties on the United States Federal Reserve's (Fed) policy stance over the reduction in stimulus, which could still happen this year if the US economy keeps improving.
Nonetheless, buying momentum shifted to rotational plays on small caps, ACE market and penny stocks, which continued to highlight trading.
Week-on-week, the blue-chip benchmark FBM Kuala Lumpur Composite Index (FBM KLCI) slumped 25.67 points, or 1.42 per cent, to 1,776.16, with Maybank (-44sen), CIMB (-31sen), UMW Holdings (-74sen) and Public Bank (-14 sen) accounting for about 60 per cent of the index's loss.
Average daily traded volume rose to 2.13 billion shares but value was at RM1.84 billion, compared with 1.82 billion shares and RM2.1 billion, respectively, the previous week. The lower value form reflected more trading interest in small caps and ACE market stocks last week.
Development in the US will continue to affect the regional and local markets undertone this week. The US lawmakers are still at odds in approving the spending for the new fiscal year that will start tomorrow and any delays would lead to a government shutdown. We will know today whether the US House of Representatives agrees to extend government funding temporarily through December 15 as they were supposed to vote last night to delay portions of Obamacare for a year and repeal a medical device tax as part of the extension plan.
Equity markets will react negatively to any shutdown and a prolonged one would definitely undermine the US economic growth. Even if the Congress succeeds in resolving it temporarily, the next hurdle of raising the US$16.7 trillion (RM54 trillion) debt ceiling limit will be another daunting issue. Time is running out to reach an agreement as well as the Congressional Budget Office has cautioned that the US will run out of money to pay all of its bills at some point between October 22 and 31.
One consoling factor is that with all these uncertainties, the Fed is very unlikely to pursue with any tapering decision in its October meeting but it could be revisited when it meets again in December, if economic conditions warrant. So far, the inflationary pressures are still tame and far from the Fed's target based on August core personal consumption deflator of 1.2 per cent, the focus next will be on non-farm payrolls data on Friday.
Considering the heightened level of uncertainty in the US, the FBM KLCI is not expected to display any significant window-dressing activities today, the last day of the third quarter. Selective rotational interest could be seen in some undervalued Umno-related counters ahead of the Supreme Council election this month but any upside could be capped by concerns over stringent measures to cut subsidies in the upcoming 2014 Budget and its implications over corporate earnings as cost escalates. Thus, investors are advised to trade cautiously with a short-term view. Technical Outlook
Spot month September KLCI futures contract traded on the Bursa Malaysia Derivatives Bhd gave back 17 points, or 0.95 per cent, last week to 1,775, reducing its discount cash to 1.2 points from 9.8 points discount the previous Friday, as the futures contract started converging to the cash index nearing expiry.
The local stock market slipped into profit-taking correction mode on Monday, copying corrections on Wall Street and regional markets as uncertainty returns over the likelihood for tapering by the Fed this year despite the surprising stance to maintain stimulus the previous week. The KLCI slid 5.47 points to settle at 1,796.36, off a low of 1,793.28 and high of 1,800.30, as losers edged gainers 390 to 358 on steady trade totalling 2.14 billion shares worth RM1.78 billion.
Blue chips extended correction the following day led by banking stocks Maybank, CIMB and AMMB, matching regional falls on lingering investor concerns that the Fed could still cut stimulus this year if the US economy keeps improving. The KLCI slid another 3.88 points to end at 1,792.48, the day's high and off an early low of 1,785.41, as losers edged gainers 388 to 372 on steady trade totalling 1.92 billion shares worth RM1.86 billion.
Banks led blue chips lower for extended correction last Wednesday, dampened by overbought conditions and uncertainties over the Fed's stimulus bias and government budget talks, but rotational buying of oil and gas stocks continued to highlight selective interest. The KLCI lost 8.42 points to close at 1,784.06, off an early high of 1,791.18 and low of 1,783.15, as losers beat gainers 420 to 359 on higher trade totalling 2.21 billion shares worth RM2.05 billion.
Blue chips sustained losses for a third day on Thursday, with banking stocks extending falls to drag the benchmark index lower for profit-taking correction, but rotational plays on small caps, ACE market and penny stocks continued to highlight trading. The KLCI shed another 9.9 points to settle at the day's low of 1,774.16, off the opening high of 1,784.96, as losers beat gainers 404 to 327 on total traded volume of 2.14 billion shares worth RM1.88 billion.
Stocks staged rebound ahead of the weekend following a positive US jobs report but gains were capped by worries over whether US politicians would pass Bills to avoid a government shutdown and debt default on time on Monday. The KLCI ended up two points at 1,776.16 last Friday, off an opening low of 1,775.35 and high of 1,781.61, as gainers edged losers 401 to 356 on steady trade totalling 2.21 billion shares worth RM1.61 billion.
Trading range for the local blue-chip benchmark index slipped further to 26.14 points last week, compared to the 36.03 points range the previous week, after core blue chips fell into consolidation mode. The FBM-EMAS Index lost 145.12 points, or 1.2 per cent, last week to 12,349.30, but the FBM-Small Cap Index edged 26.79 points, or 0.2 per cent, to 15,383.57, as small cap stocks, especially SPACs, continued to outperform the broader market.
The daily slow stochastic indicator for the FBM KLCI had slipped back into the neutral region from the excessively overbought reading after last week's correction, but the weekly indicator maintained the previous week's buy signal. The 14-day Relative Strength Index (RSI) indicator softened to a neutral reading of 54.43 as of last Friday, while the 14-week RSI declined to a weaker reading of 56.10.
On trend indicators, the daily Moving Average Convergence Divergence (MACD) signal line hooked down to imply deterioration of the current uptrend, while the weekly MACD signal line has also hooked down to suggest correction ahead. The 14-day Directional Movement Index (DMI) trend indicator's +DI and -DI lines are contracting towards each other on a declining ADX line, signalling a potential extended correction phase.Conclusion
Most momentum and trend indicators for the FBM KLCI have softened following last week's profit-taking correction, signalling that blue chips would likely extend profit-taking consolidation this week. Uncertainties over tapering potential this year by the Fed and political disagreement over expanding the debt ceiling to prevent a damaging government shutdown will discourage investors to the sidelines until the situation becomes clearer.
Immediate support for the index remains at 1,772, the 23.6 per cent Fibonacci Retracement (FR) level of the February 2 2013 low of 1,597 to the all-time high of 1,826, followed by 1,767, the 50-day moving average level, where the index may stabilise. Nonetheless, a decisive breakdown would see the previous 1,747-1,753 gap-up of September 10 being tested for support, while next retracement support will be at 1,738, the 38.2 per cent FR. Immediate resistance remains at 1,805, with stronger hurdles at the July pivot high of 1,811, and subsequently the all-time high of 1,826.
Chart-wise, prefer lower liner construction, property and oil & gas related stocks such as Benalec, WCT Holdings, IJM Land, Mah Sing, Muhibbah Engineering, Tanjung Offshore, TH Heavy Engineering and Wah Seong.The subject
expressed above is based purely on technical analysis and opinions of the writer. It is not a solicitation to buy or sell.