FBM KLCI - lower on profit-taking correction

Stocks on Bursa Malaysia closed mostly easier yesterday on persistent sell-off in line with tepid performance in key regional markets. The local index saw some profit-taking amid the selling pressure with the market overbought recently, and external uncertainties also continued to hurt investors’ appetite to take more risk in the market. The benchmark FBM KLCI eased 3.96 points to end at 1,625.49, after opening 0.63 of a point lower at 1,628.82. Losers led gainers by 478 to 289 while 341 counters were unchanged. Turnover declined to 1.279 billion shares worth RM1.681 billion from 1.34 billion shares worth RM2.49 billion on Wednesday.

The FBM KLCI opened 0.63 point lower at 1,628.82 and slipped lower, but it rebounded fairly quickly to hit another new record intra-day high of 1,632.94 after thirty five minutes of trading. Thereafter, persistent selling pressure on heavy profit-taking pressed the benchmark index to the intra-day low of 1,624.56 before rebounding slightly to close off low. Chart-wise, the FBM KLCI formed a bearish black inverted hammer candlestick, a top reversal candlestick pattern, which indicates heavy selling pressure and the FBM KLCI might have temporarily seen its top at 1,632.94, and the key index is likely to further correct itself. Immediate downside support zone is at 1,621 to 1,611 and the overhead resistance is at 1,633.

MACD has tapered off while its histogram has turned shorter, indicating a reduction in the upward momentum. RSI (14) hooked downward to 68.2, reflecting the pulled back in the key index, and nevertheless, the short term relative strength is still in the bullish zone. Stochastic was lower at 90.5 from 96.4 previously, indicating the weakening of the market strength and possible beginning of a short term correction cycle. Signals from the indicators showed that a short term correction phase of the FBM KLCI has just started and it is likely to further consolidate.

The overall trend of the FBM KLCI remained up and bullish as the key index is still staying above all the moving averages. The key index is currently sitting right above the very short term 5-day SMA at 1,624 and a break below the 5-day SMA is likely to see the key index sliding lower to the 10-days SMA which is currently at 1,615-point level. Nevertheless, the medium to longer term uptrend is very much intact, and the short term correction should be viewed as an opportunity to buy into weakness for quality shares.

Overnight, the Dow fell -31.26 points or -0.25% for the sixth consecutive sessions to close at 12,573.27. Today, the FBM KLCI is likely to trade within a range of 1,614 to 1,642.

This week's expected range: 1585 – 1641
Today’s expected range: 1614 – 1642

Resistance: 1631, 1636, 1642
Support: 1614, 1619, 1622

Stocks to watch: MHB, MPHB,  DELEUM, HARVEST, KHSB