FBM KLIC - toppish reversal formation

Stocks on Bursa Malaysia ended softer yesterday on active profit-taking in blue-chips after the recent gains. The FBM KLCI, which posted a new record high of 1,788.43 on Tuesday, was down by 5.4 points or 0.3% to end at 1,783.03. The key index hovered between 1,781.02 and 1,793.87 throughout the day, with gainers leading losers by 606 to 287 while 271 counters were unchanged. Volume increased to 2.95 billion units worth RM2.70 billion from 2.24 billion shares worth RM2.68 billion on Tuesday.

Taking cue from the strong close on Wall Street overnight, the FBM KLCI opened with an upside gap of 4.2 points at 1,792.63 and climb to the intra-day high of 1,793.87 in the first hour of trading, and heavy profit-taking which set in sent the key index lower for the rest of the day to hit the intra-day low of 1,781.02 before rebounding slightly to close off low. Chart-wise, the FBM KLCI formed a bearish engulfing candlestick pattern, a key reversal candlestick pattern, which indicates the key index is toppish and was facing heavy selling pressure. Hence, the FBM KLCI is likely to slide lower today on continue profit-taking on blue-chip stocks which has made decent gains recently. Immediate downside support is at 1,775 while the overhead resistance is at 1,793.

MACD was higher but is tapering off while its histogram has contracted for the second bar, indicating a fast reduction in the upward momentum. RSI (14) was lower at 71.9 from 75.1, reflecting a pullback in the key index. Stochastic was higher at 71.8 from 69.3,indicating the short term up cycle is still intact. Mixed readings from the indicators showed that the FBM KLCI is going into a correction or consolidation mode.

The trend of the FBM KLCI remained up, however, the key index has already showed signs of toppishness with three key reversal candlestick patterns forming over the last three sessions, indicating heavy distribution of stocks are taking place at current level. Hence, the FBM KLCI is likely to further correct itself with an immediate downside support zone at 1,779 to 1,760 provided by the 5 and 10-day SMA. A break of the 10-day SMA will likely see a deeper correction which will eventually close the gap at 1,743 to 1,718.

Overnight, the DJIA rose 60.44 points or +0.40% to close at 15,275.69. Today, the FBM KLCI is likely to trade within a range of 1,765 to 1,806.

This week's expected range: 1697 – 1818
Today’s expected range: 1765 – 1806

Resistance: 1799, 1798, 1806
Support: 1765, 1773, 1778