FBM KLCI - bearish outlook

Stocks on Bursa Malaysia closed sharply lower yesterday on extended losses in finance counters and blue-chips. Declines on regional Asian markets on news of China’s latest rate hike, and the still fragile economic outlook in the United States have kept investors on the sidelines. The FBM KLCI lost 30.08 points or 2.09% to 1,503.99, its lowest level, since Dec 21st last year. Losers beat gainers by 752 to 158 while 223 counters were unchanged. Total volume increased to 2.22 billion shares worth RM3.13 billion from 2.196 billion shares worth RM2.66 billion on Wednesday.

The FBM KLCI opened with a down gap of 11.68 points at 1,524.39 and plunged to the morning session’s low of 1,517.77, and the key index rebounded gradually but lack momentum. Heavy selling pressures that appeared in mid afternoon pushed the key index to close at the lowest point of the day. Chart-wise, the FBM KLCI formed a bearish long black candlestick which indicates sellers were dominant throughout the day, and the large down gap also indicates investors were selling-out on fear factor. The key index has now closed below the recent low or support of 1,505.36, and hence is likely to slide lower to test the psychological support at 1,500 and the next lower supports at 1,493 and 1,474.

MACD has hooked downward abruptly, indicating a sudden increase in the downward momentum. RSI (14) plunged to a new low of 35.5, and this indicates the key index has turned very bearish. Stochastic has turned downward, crossing below its slow stochastic line, signaling an end to the recent rebound and a continuation of the down cycle. Signals from the indicators indicate that the FBM KLCI has turned bearish for the short term, and this bearishness is likely to continue for a while.

The FBM KLCI has turned downtrend in the short term, and now that the key index has closed below the 60 and 100-day moving averages, the medium term outlook is also turning bearish. The long term uptrend, however, is still intact. With the down move yesterday, the FBM KLCI has already formed the Head-and-Shoulder chart pattern, and this is a long term bearish pattern. The break of the neckline yesterday gives a possible downside target of 1,427 for the FBM KLCI in the longer term. Immediate downside support at 1,493 and 1,474 are critical levels to watch.

Overnight, the Dow fell -10.60 points or -0.09% to close at 12,229.29. Today, the FBM KLCI is likely to trade within a range of 1472 to 1550.

This week's expected range: 1482 – 1567
Today’s expected range: 1472 – 1550

Resistance: 1519, 1535, 1550
Support: 1472, 1488, 1496