The Malaysian bourse is expected undergo further corrections as investors take time to digest the impact of H1N1 flu cases while awaiting the release of manufacturing sales, inflation and foreign reserves numbers this week.
Stocks on the local exchange fell into profit-taking correction last week, dampened by external markets which corrected on weaker-than-expected economic numbers from the US, while locally, new twists and political developments with regard to the Perak state government made potential buyers stay on the sidelines. News of the first case of influenza A (H1N1) in Malaysia that popped up last Friday had a mild impact on the market as well.
The KLCI gave back 12.57 points, or 1.2 per cent, last week to end at 1,014.21, with more than half of the losses contributed by Axiata (-2.3 index points), Genting Bhd (-1.75), Tenaga (-1.57) and Maybank (-1.28). Average daily trading volume and value rose further to 2.8 billion shares worth RM1.94 billion, compared with 2.55 billion shares and RM1.97 billion in the previous week.
The performance of oil and gas companies in the last two months was splendid as the share price and price-to-earnings multiple of almost all players involved in the upstream sector more than doubled along with the rise in crude oil prices that touched US$60 (US$1 = RM3.54) per barrel early last week. Nonetheless, profit-taking activity was visible last Friday as oil prices retreated to U$57 despite a US Energy Department report showing that the US crude supplies dropped for the first time in 10 weeks in the world's largest oil consuming nation. This correction was attributed mainly to the unexpected weakness in the US April retail sales and a surprise increase in the Organisation of Petroleum Exporting Countries' oil supply that exceeded the cartel's target by 967,000 barrels a day.
All eyes will be on Opec's next move when member nations meet on May 28 as the organisation has been targeting US$75 per barrel oil price in early 2010. Although the pickup in oil demand is slow, perhaps an agreement to cut supply further and a resolution to adhere to the output cuts strictly will contribute to this target apart from continued weakness in the US dollar.
Despite the short-term hiccups, the price of this scarce commodity is expected to rise above US$70 per barrel in the first quarter of 2010 as the global economy starts shows showing signs of sustainable recovery by then. Hence, it is worth while to accumulate some growth stocks in this sector during price weakness as the caldendar year 2009 CY09) sector price earnings ratio (PER) of 8x is undemanding versus the KLCI's 14x.
Perisai Petroleum is a clear laggard among them as it is trading at a CY09 PER of 4.8x and the expected migration to the main board next month will be an important catalyst for its share price as it will be within reach of funds that have restriction in buying Mesdaq stocks currently. The company's 5-for-4 bonus issue will go ex-bonus on Wednesday. The company's first quarter 2009 results that will be released this month will add more lustre to the stock as the net profit figure is forecast to exceed its whole year's profit in 2008 due to strong "full quarter" contribution from its newly acquired pipe-laying vessel.
The broader market is expected undergo further corrections as investors take time to digest the impact of H1N1 flu cases in Malaysia while awaiting the release of key economic data like manufacturing sales, Consumer Price Index and foreign reserves numbers this week. Externally, the outcome of US housing starts, building permits and leading indicators will have important influence on global equity market direction this week. Besides oil & gas, weaknesses in the construction and industrial material sectors also should be seen as opportunities to accumulate.
Technical outlook
The local stock market staged a profit-taking correction in line with weaker regional markets in afternoon trade last Monday, but market breadth stayed positive as lower liners managed to post gains on strong volume which totalled 3.85 billion shares, the highest since February 2007. The market reversed earlier losses triggered by the overnight fall on Wall Street the next day, as buyers returned to prop up lower liners in line with a rebound in the region from morning lows.
On Wednesday, while blue chips consolidate, lower liners remained resilient as profit-taking was offset by renewed buying momentum in laggards, led by oil & gas and steel related stocks which enjoyed strong gains. However, stocks fell the next day, depressed by the overnight correction in US stocks due to the unexpected fall in April retail sales which raised concern that a recovery from the global recession will be anaemic.
The rebound on Friday failed to gather steam, as profit-taking and forced selling on contra positions by retailers caused the broader market to weaken with market breadth rather bearish ahead of the weekend.
The KLCI peaked at high of 1,034.37 early Monday and sold off to close at an intra-week low of 1,011.99 on Thursday for a narrower 22.38-point range before ending near the lower range last Friday as sellers overcame buyers.
Among the other indices, the FBM-EMAS Index was off by 83.64 points, or 1.2 per cent, to close at 6,764, while the FBM-Small Cap Index tumbled 233.08 points, or 2.7 per cent to 8,421.91.
The daily slow stochastics indicator for the KLCI has dipped into the oversold region as of last Friday (Chart 1), but the weekly indicator flashed a fresh sell signal at the highly overbought area to suggest further correction ahead. The 14-day Relative Strength Index (RSI) has been neutralised with a reading of 67.62, while the 14-week RSI re-hooked down for a reading of 62.58.
A sell signal was triggered on the daily Moving Average Convergence Divergence (MACD) indicator on Thursday, but the weekly MACD signal line extended higher above to the zero line. The 14-day Directional Movement Index (DMI) trend indicator still showed the uptrend is intact, with the ADX line holding significantly above the 25-point threshold which indicates the local market remains in uptrend mode.
Conclusion
Except for the weekly slow stochastics and daily MACD indicators for the KLCI which triggered sell signals last week, other technical momentum indicators are still friendly to suggest that the current uptrend remained intact. Moreover, the oversold situation on the daily slow stochastics calls for technical rebound potential this week. Longer-term trend indicators also reinforce medium-term upside potential.
While blue chips are expected to extend low-volume consolidation, the present two-tier market suggests that lower liners may still stage strong comeback if robust buying momentum returns. The construction, oil & gas and steel sectors may bounce back once the indigestion from recent high volume peaks has been neutralised by sharp profit-taking pullbacks.
As for the KLCI, look for the retracement levels of the most recent pivot low of 952 ( April 29) to the 1,037 peak (May 7) at 1,005 (38.2 per cent), 995 (50 per cent) and 985 (61.8 per cent) for support formation. More solid support platforms are at the 30-day SMA (975) and the 200-day SMA (949). On the flipside, immediate upside hurdle is seen at 1,020, next at 1,027, and higher up at the recent peak of 1,037.81.
The subject expressed above is based purely on technical analysis and opinions of the writer. It is not a solicitation to buy or sell.
Stocks on the local exchange fell into profit-taking correction last week, dampened by external markets which corrected on weaker-than-expected economic numbers from the US, while locally, new twists and political developments with regard to the Perak state government made potential buyers stay on the sidelines. News of the first case of influenza A (H1N1) in Malaysia that popped up last Friday had a mild impact on the market as well.
The KLCI gave back 12.57 points, or 1.2 per cent, last week to end at 1,014.21, with more than half of the losses contributed by Axiata (-2.3 index points), Genting Bhd (-1.75), Tenaga (-1.57) and Maybank (-1.28). Average daily trading volume and value rose further to 2.8 billion shares worth RM1.94 billion, compared with 2.55 billion shares and RM1.97 billion in the previous week.
The performance of oil and gas companies in the last two months was splendid as the share price and price-to-earnings multiple of almost all players involved in the upstream sector more than doubled along with the rise in crude oil prices that touched US$60 (US$1 = RM3.54) per barrel early last week. Nonetheless, profit-taking activity was visible last Friday as oil prices retreated to U$57 despite a US Energy Department report showing that the US crude supplies dropped for the first time in 10 weeks in the world's largest oil consuming nation. This correction was attributed mainly to the unexpected weakness in the US April retail sales and a surprise increase in the Organisation of Petroleum Exporting Countries' oil supply that exceeded the cartel's target by 967,000 barrels a day.
All eyes will be on Opec's next move when member nations meet on May 28 as the organisation has been targeting US$75 per barrel oil price in early 2010. Although the pickup in oil demand is slow, perhaps an agreement to cut supply further and a resolution to adhere to the output cuts strictly will contribute to this target apart from continued weakness in the US dollar.
Despite the short-term hiccups, the price of this scarce commodity is expected to rise above US$70 per barrel in the first quarter of 2010 as the global economy starts shows showing signs of sustainable recovery by then. Hence, it is worth while to accumulate some growth stocks in this sector during price weakness as the caldendar year 2009 CY09) sector price earnings ratio (PER) of 8x is undemanding versus the KLCI's 14x.
Perisai Petroleum is a clear laggard among them as it is trading at a CY09 PER of 4.8x and the expected migration to the main board next month will be an important catalyst for its share price as it will be within reach of funds that have restriction in buying Mesdaq stocks currently. The company's 5-for-4 bonus issue will go ex-bonus on Wednesday. The company's first quarter 2009 results that will be released this month will add more lustre to the stock as the net profit figure is forecast to exceed its whole year's profit in 2008 due to strong "full quarter" contribution from its newly acquired pipe-laying vessel.
The broader market is expected undergo further corrections as investors take time to digest the impact of H1N1 flu cases in Malaysia while awaiting the release of key economic data like manufacturing sales, Consumer Price Index and foreign reserves numbers this week. Externally, the outcome of US housing starts, building permits and leading indicators will have important influence on global equity market direction this week. Besides oil & gas, weaknesses in the construction and industrial material sectors also should be seen as opportunities to accumulate.
Technical outlook
The local stock market staged a profit-taking correction in line with weaker regional markets in afternoon trade last Monday, but market breadth stayed positive as lower liners managed to post gains on strong volume which totalled 3.85 billion shares, the highest since February 2007. The market reversed earlier losses triggered by the overnight fall on Wall Street the next day, as buyers returned to prop up lower liners in line with a rebound in the region from morning lows.
On Wednesday, while blue chips consolidate, lower liners remained resilient as profit-taking was offset by renewed buying momentum in laggards, led by oil & gas and steel related stocks which enjoyed strong gains. However, stocks fell the next day, depressed by the overnight correction in US stocks due to the unexpected fall in April retail sales which raised concern that a recovery from the global recession will be anaemic.
The rebound on Friday failed to gather steam, as profit-taking and forced selling on contra positions by retailers caused the broader market to weaken with market breadth rather bearish ahead of the weekend.
The KLCI peaked at high of 1,034.37 early Monday and sold off to close at an intra-week low of 1,011.99 on Thursday for a narrower 22.38-point range before ending near the lower range last Friday as sellers overcame buyers.
Among the other indices, the FBM-EMAS Index was off by 83.64 points, or 1.2 per cent, to close at 6,764, while the FBM-Small Cap Index tumbled 233.08 points, or 2.7 per cent to 8,421.91.
The daily slow stochastics indicator for the KLCI has dipped into the oversold region as of last Friday (Chart 1), but the weekly indicator flashed a fresh sell signal at the highly overbought area to suggest further correction ahead. The 14-day Relative Strength Index (RSI) has been neutralised with a reading of 67.62, while the 14-week RSI re-hooked down for a reading of 62.58.
A sell signal was triggered on the daily Moving Average Convergence Divergence (MACD) indicator on Thursday, but the weekly MACD signal line extended higher above to the zero line. The 14-day Directional Movement Index (DMI) trend indicator still showed the uptrend is intact, with the ADX line holding significantly above the 25-point threshold which indicates the local market remains in uptrend mode.
Conclusion
Except for the weekly slow stochastics and daily MACD indicators for the KLCI which triggered sell signals last week, other technical momentum indicators are still friendly to suggest that the current uptrend remained intact. Moreover, the oversold situation on the daily slow stochastics calls for technical rebound potential this week. Longer-term trend indicators also reinforce medium-term upside potential.
While blue chips are expected to extend low-volume consolidation, the present two-tier market suggests that lower liners may still stage strong comeback if robust buying momentum returns. The construction, oil & gas and steel sectors may bounce back once the indigestion from recent high volume peaks has been neutralised by sharp profit-taking pullbacks.
As for the KLCI, look for the retracement levels of the most recent pivot low of 952 ( April 29) to the 1,037 peak (May 7) at 1,005 (38.2 per cent), 995 (50 per cent) and 985 (61.8 per cent) for support formation. More solid support platforms are at the 30-day SMA (975) and the 200-day SMA (949). On the flipside, immediate upside hurdle is seen at 1,020, next at 1,027, and higher up at the recent peak of 1,037.81.
The subject expressed above is based purely on technical analysis and opinions of the writer. It is not a solicitation to buy or sell.
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