FBM KLCI - bearish outlook

Stocks on Bursa Malaysia fell on persistent selling across the board in cautious trade last Friday, ahead of the long holidays this week and US Federal Reserve chairman Ben Bernanke's speech. On the domestic front, corporate earnings have not been attractive, continuing to slide, with both big and small caps sharing the disappointments and downgrades. The FBM KLCI fell 19.93 points or 1.36% to 1,444.81, after opening 4.44 points lower at 1,460.3, and week-on-week, it eased 39.17 points to 1,444.81 from 1,483.98 previously. Decliners outnumbered advancers by 640 to 168 while 228 counters were unchanged. Volume rose to 966.739 million shares worth RM2.266 billion from 833.92 million shares worth RM2.022 billion traded on Thursday, while total weekly volume decreased to 4.512 billion shares worth RM9.577 billion from 5.067 billion shares valued at RM8.921 billion previously.

The FBM KLCI started last week on a weak note, it opened with a down gap of 6.65 points at 1,477.33 and slid lower to close at 1,472.16 on Monday. The key index rebounded 10.21 points to 1,482.37on Tuesday with sentiments largely lifted by better-than-expected manufacturing activity data from China. On Wednesday, the FBM KLCI dipped 13.22 points to 1,469.15 in a knee-jerk reaction after Moody's cut Japan's credit rating. The benchmark index fell 4.41 points to 1,464.74 on Thursday, bucking regional trend, led by finance stocks and on selling pressure as global economic growth outlook dampened investor sentiment. The FBM KLCI continued its decline into Friday to close the week at 1,444.81 after hitting the intra-week low of 1,442.08.

On the weekly chart, the FBM KLCI formed a bearish black candlestick which indicates heavy selling pressure throughout the week. And now, the key index had closed below the psychological support level of 1,450-point which coincides with the 80-week moving average (MA), hence, there is a strong likelihood that the FBM KLCI may slide lower to re-test the support of the recent low at 1,423 and the 23% Fibonacci retracement level of 1,410 which coincides with the 100-week MA.

On the daily chart, the FBM KLCI formed a bearish black candlestick with a down gap which indicates panic selling and liquidation of selected blue-chip stocks which dragged down the key index. The key index pierced through the 360-day MA and slid all the way to hit the intra-day low of 1,442.08 before rebounding mildly to close off low. As the FBM KLCI has closed below the 360-day MA, it has turned long term bearish, and more downsides are expected ahead. The possible downside targets are the 23.6% Fibonacci retracement level at 1,410, follows by the 38.2% Fibonacci retracement level at 1,293, both measuring from the pivot low of 801 to the pivot high of 1,597.

Weekly MACD had just crossed below the zero-line, sending out an official bearish signal on the weekly chart, and daily MACD also continued to slide lower, indicating an acceleration of the bearish momentum. Weekly RSI (14) plunged lower to 32, while daily RSI (14) was lower at 25.7, and both indicate the relative strength of the FBM KLCI is very bearish. Weekly Stochastic slipped lower to 27.3, and daily Stochastic also slide lower to 37.9, both readings indicates the down cycle is still in continuation. Readings from both the weekly and daily indicators showed a very bearish scenario for the FBM KLCI, and the current consolidation process may continue until there are signs of reversal.

The trend of the FBM KLCI has turned long term bearish, and one can expect more downsides to come. Last Friday, Wall Street's Dow Jones Industrial Average rose by 134.72 points, or 1.21%, to end the week at 11,284.54, after it was reported in the much awaited speech by Federal Reserve Chairman Ben S. Bernanke, that the US economy was not deteriorating fast to warrant an additional stimulus. As such, the FBM KLCI is likely to reverse some of its losses in the holiday shortened trading week today. Bursa Malaysia will be closed from Tuesday to Thursday for Hari Raya and the National Day celebrations, if Hari Raya falls on Tuesday. Today’s trading will only be for a half day. To all our Muslim readers, we wish you “Selamat Hari Raya Aidilfitri, Maaf Zahir dan Batin” and to our non-Muslim readers, we wish you a happy holiday, and please drive carefully.

This week's expected range: 1423 – 1474
Today’s expected range: 1430 – 1467

Resistance: 1450, 1456, 1467
Support: 1430, 1437, 1440