The local blue-chip benchmark index managed to rise to another fresh 17-month high last week, before pausing for profit-taking breather as overbought momentum capped upside.
Market sentiment also turned cautious following the liquidation of a top China property developer, with more investors staying by the sidelines as the market digest the outcome of the US central bank's first monetary policy meeting of the year.
Week-on-week, the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) added 10.3 points, or 0.68 percent, to 1,516.58, as gains on Maybank (+20sen), Tenaga (+32sen), Public Bank (+6sen), Axiata (+11sen) and Sime Darby Plantations (+14sen) offset falls on YTL Corp (-21sen) and
Press Metals Holdings Berhad (-11sen). Average daily traded volume last week declined further to 3.85 billion shares, compared to 4.8 billion shares the previous week, while average daily traded value eased to RM2.87 billion, against the RM3.19 billion average the previous week.
Profit taking consolidations are expected to increase ahead of the festive holidays this weekend as investors look for more drivers that could sustain the revival in the FBMKLCI. We need stronger domestic catalysts to prop up the domestic equity market as the likelihood of rate cuts in the US contributing to a stronger ringgit, which is seen as an important driver to woo back foreign investors, is being delayed.
Ringgit closed at RM4.7285 against the US dollar last Friday versus RM4.5995 last year-end. This could keep exporters in the limelight this week, while investors keep tabs on the domestic Industrial Production Index (IPI), and Caixin China PMI Composite and Services data apart from China's Consumer Price Index (CPI) and Producer Price Index (PPI).
The still strong US labour data for January and falling core personal consumption expenditure painted a robust outlook for the US economy despite prevailing expectations for a soft landing or even a recession in a worst-case scenario.
The latest nonfarm payroll data last Friday revealed that the economy added 353,000 jobs, much stronger than expected 185,000 in Bloomberg forecast, while the average hourly earnings rose 4.5 per cent year-on-year (YoY), higher than December's 4.3 per cent YoY, and the unemployment rate held steady at 3.7 per cent.
As the wage growth is running ahead of the 3.0 per cent to 3.5 per cent range that the most policymakers view as consistent with the US Federal Reserve's (Fed) 2 per cent inflation target, the likelihood for a cut in March or even in May meeting appears remote, if the labour market continues to exhibit persistent strength in the coming months.
This is consistent with the US Federal Reserve's assertion last week that a rate cut in the March meeting is unlikely and it would continue to parse incoming data for more evidence that inflation is easing towards its target before cutting rates.
According to Bloomberg forecast, Malaysia's IPI is expected to expand at a moderate pace of 0.3 per cent YoY in December, after it decelerated to 0.6 per cent YoY in November from 2.4 per cent YoY a month earlier.
The IPI has sustained a moderate expansion of 1.0 per cent YoY in the first eleven months of last year with a notable growth of 2.3 per cent YoY in the electricity index while the manufacturing and mining indices grew at a slower pace of 0.9 per cent YoY and 0.6 per cent YoY, respectively.
As external trade has impact on IPI, the focus will be on China's deflationary pressure as well as the January CPI and PPI data this Thursday should provide important clues on domestic demand, economic growth prospects and the likely policy support from the Chinese government and the central bank to revive the economy amid weak consumption and consumer confidence.
Technical Outlook
The local benchmark index rose for a sixth straight session on Monday, with plantation and banking stocks leading gains on strong buying support and in line with firmer regional markets as investors were buoyed by Chinese regulators latest move to bolster the country's equity market and property sector.
The FBM KLCI gained 9.11 points to close at 1,515.39, off an early low of 1,507.88 and high of 1,518.44, as gainers edged losers 513 to 499 on total turnover of 4.31 billion shares worth RM2.98 billion.
Bursa Malaysia's shares slid into profit-taking consolidation on Tuesday, after the blue-chip benchmark hit resistance at 1,520 amid the more cautious regional tone following the liquidation of a top China property developer. The FBM KLCI eased 2.64 points to close at 1,512.75, off an early high of 1,520.31 and low of 1,511.84, as losers beat gainers 622 to 383 on slower trade totalling 3.77 billion shares worth RM2.64 billion.
Stocks extended profit-taking consolidation on Wednesday and ahead of the Federal Territory Day holiday, with most investors sidelined while awaiting the outcome of the US central bank's first monetary policy meeting of the year.
The FBM KLCI ended flat at 1,512.98 (+0.23), after swinging between low of 1,509.55 and high of 1,516.4, as losers beat gainers 635 to 401 on cautious trade totalling 3.67 billion shares worth RM2.86 billion.
The local market stayed range bound ahead of the weekend break, as investors pore over the US Federal Reserve's monetary policy stance, and await further domestic market leads. The index rose 3.6 points on Friday to close at 1,516.58, off an early low of 1,508.50 and high of 1,521.23, as losers swarmed gainers 690 to 311 on total turnover of 3.65bn shares worth RM3 billion.
Trading range for the blue-chip benchmark index last week shrank to 13.35 points, compared to the 23.88-point range the previous week, as substantial profit-taking resistance near the 1,520 level capped its rise. For the week, the FBM-EMAS Index added 15.94 points, or 0.14 percent to 11,248.73, but the FBM-Small Cap Index slid 328.52 points, or 1.94 percent to 16,567.52, as profit-taking in small caps picked up steam.
Following the FBM KLCI's rebound last Friday, the daily slow stochastics momentum indicator inched higher into overbought territory, mirroring the weekly indicator's journey into the overbought zone.
The 14-day Relative Strength Index (RSI) indicator has risen to a level bordering the overbought mark, while the 14-week RSI indicator also trended higher to a similar level.
On trend indicators, the daily Moving Average Convergence Divergence (MACD) extended upwards, reinforcing the strengthening weekly MACD signal line to support an uptrend. The +DI and -DI lines on the 14-day Directional Movement Index (DMI) trend indicator sustained the positive expansion on a rising ADX line, suggesting a persisting uptrend.
Conclusion
While trend indicators for the FBM KLCI improve their positive signals following the recent climb to a fresh 17-month high, increasingly overbought momentum suggest a profit-taking consolidation should follow to aid a more sustainable uptrend ahead. Hence, it is key that more positive domestic catalysts emerge to sustain the uptrend going forward. More concrete news flow on infrastructure projects, such as the proposed high-speed rail from KL to Singapore and the Johor/Singapore Special Economic Zone will be key to increase upside momentum and promote stronger investor participation.
Immediate overhead resistance for the index remains at 1,520, with stronger upside hurdles coming at 1,550 and 1,580. Key chart supports cushioning downside will be at 1,486, 1,476 and 1,462, the respective 30-day, 50-day and 100-day moving averages.
As for stocks picks this week, selected oil and gas, construction, semiconductor and rubber glove related counters such as Dialog Group, Hibiscus Petroleum, MRCB, UEM Sunrise, SKP Resources, VSI, Supermax and Top Glove should attract bargain hunters looking for rotational plays ahead.