ACE Market and penny stocks are likely to continue attracting strong retail participation,, says a head of research.
Shares on Bursa Malaysia whip-sawed last week due to volatile conditions on global markets on concern that the contagion from the European sovereign debt crisis could spread from Greece to Italy. However, ACE Market and penny stocks enjoyed sharp rallies due to strong retail participation and as market players woke up from their slumber to join the party on the local stock exchange.
For the week, the blue-chip benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) eased 8.76 points, or 0.6 per cent, to close at 1,468.75, with most of the losses coming from IOI Corp(-17 sen), CIMB (-14 sen), Genting Bhd (-22 sen) and Tenaga Nasional(-13 sen). Average daily traded volume and value ballooned to 2.3 billion shares and RM1.5 billion respectively, the highest since February this year, compared with the 1.63 billion shares and RM1.43 billion in the previous week, as ACE market and penny stocks continued to attract strong retail participation last week.
Positive vibes seen in the US and European markets last Friday should trickle down to our local market today despite the continued unsettling issues in the eurozone. The fact that the Italian prime minister resigned last Friday to pave way Mario Monti to form a new government that can start working on agreed austerity measures and find ways in reducing its ?1.9 billion debt could help ease the current volatility in financial markets.
This development is important as the Italian 10-year bond yields surged past seven per cent last week, which raised concerns that Italy could be forced to seek a bailout. While intervention from the European Central Bank brought it down to below seven per cent temporarily, a stable government should be able to provide a more coherent and credible economic plan that could pacify investors and stabilise the bond market for now.
However, bear mind that there is no short-term fix for Europe's woes. The bitter pills of austerity measures will have their contractionary impact on gross domestic product and affect the rest of the world. Thus, it is not surprising when Malaysia's central bank maintained its overnight policy rate at three per cent as its last Friday's meeting amid concerns over rising policy uncertainties. It was within market expectations. It may choose to hold rates steady even at the next Monetary policy Committee meeting on January 31 2012 as global adversities could derail the overall growth prospects of the domestic economy, especially in terms of external demand.
While the third quarter GDP figure that will be released on Friday could provide some indication on the economic conditions, it will not be a true reflection of the effectss from current developments in the eurozone where its members are still grappling with debt issues and the agreed austerity measures still at early stage of implementations.
Based on Bank Negara Malaysia's assessment last Friday that the domestic economy had benefited from both international trade and robust domestic demand, the third quarter GDP figure could surprise on the upside against consensus forecast of 4.5 per cent.
On the US front, there are retail sales, housing starts and building permits data this week. Expect no positive surprises amid still weak housing and labour markets.
Technical outlook
In FBM KLCI futures, spot month November traded on Bursa Malaysia Derivatives sank 22.5 points, or 1.5 per cent, last week to 1,457.5, reversing to a wide 11.25-point discount to the cash index, compared to the 2.5-point premium the previous Friday, as investors stayed away from the futures market amid concern external volatility may adversely impact the local stock market.
The FBM KLCI retreated from earlier gains in line with most Asian markets on Tuesday as sentiment turned cautious over the ongoing eurozone financial turmoil, with trading momentum staying robust on lower liners and ACE Market stocks. The FBM KLCI gained 2.95 points to settle at 1,480.46, off an early high of 1,489.91.
Shares on Bursa Malaysia extended gains the next day after data showed China's inflation slowed and Italy's prime minister offered to resign, raising hopes Europe could contain its debt crisis. Active trading continued to focus on ACE Market and penny stocks, while the FBM KLCI climbed 9.18 points to settle at 1,489.64, off a high of 1,490.74, in heavy trade totalling 2.67 billion shares worth RM1.81 billion.
Stocks fell in a correction on Thursday, sparked by heavy losses on overnight US and European markets on concerns over potential spread of the eurozone debt contagion to Italy, and weaker-than-expected regional economic data. The FBM KLCI slumped 16.99 points or 1.14 per cent to 1,472.65, off an early low of 1,466.25, as losers swarmed gainers 568 to 227 on high turnover of 2.64 billion shares worth RM1.46 billion, mostly from ACE Market and penny stocks.
The local stock market recovered ahead of the weekend following the overnight rebound on Wall Street on lower jobless claims and lessening eurozone worries as Greece selected a new premier, with trading momentum still focused on penny stocks. Nonetheless, late profit-taking in blue chips caused the index to close down 3.9 points at the day's low of 1,468.75 on Friday, off an early high of 1,478.33.
The trading range for the FBM KLCI shrank to 24.49 points last week, compared to the 40.64-point range the previous week, as blue chips stayed within narrow trading ranges.
Among other indices, the FBM-EMAS Index lost 32.82 points, or 0.33 per cent to 10,039.33, but the FBM-Small Cap Index rebounded by 101.47 points, or 0.9 per cent, to 11,562.40.
On the technical momentum indicators, the daily slow stochastics for the FBM KLCI flashed another fresh sell signal and dropped below the overbought region, but the weekly indicator stayed bullish after triggering a buy last week. The 14-day Relative Strength Index (RSI) indicator levelled off with a reading of 54.58, while the 14-week RSI deteriorated marginally to read 48.05.
On trend indicators, the daily Moving Average Convergence Divergence (MACD) signal line has dipped and is poised to trigger a sell on further weakness, but the weekly MACD flashed a buy signal last week. The 14-day Directional Movement Index (DMI) trend indicator remained bearish, but the declining ADX line suggested a near-term market consolidation.
Conclusion
While the daily slow stochastics and MACD indicators on the FBM KLCI are bearish following last week's consolidation, bullish readings on the weekly slow stochastics and MACD support further upside in the medium term. Thus, any downside pressure this week should be mild, especially with the strong rise of in the US and European stock markets last Friday likely to draw more investors into equities as risk aversion dwindles.
Chart-wise, prefer blue chips such as AMMB and Maybank, while lower liners like Supermax, MRCB, DRB-Hicom, Kencana and SapuraCrest Petroleum are attractive to accumulate for longer-term upside.
Meantime, ACE Market and penny stocks are likely to continue attracting strong retail participation, with strong expectation of a general election in the first quarter of next year than in the immediate term after the prime minister's statement last week that it will not be held this year potentially easing concerns about market uncertainty in the immediate term.
As for the benchmark index, a decisive breakout above 1,488, the 61.8 per cent Fibonacci Retracement (FR) of the sell-off from the 1,597 record high of July 11 to the recent pivot low of 1,310 on September 26 which matches the 100-day moving average, would move it higher to challenge the more formidable 200-day moving average resistance at 1,508.
A breakout would see the 76.4 per cent FR at 1,529 as the next upside barrier. Immediate support during any profit-taking dips stays at 1,454, the 50 per cent FR, with better retracement support at 1,420, the 38.2 per cent FR, followed by 1,400 and then 1,378, the 23.6 per cent FR.
The subject expressed above is based purely on technical analysis and opinions of the writer. It is not a solicitation to buy or sell.
Shares on Bursa Malaysia whip-sawed last week due to volatile conditions on global markets on concern that the contagion from the European sovereign debt crisis could spread from Greece to Italy. However, ACE Market and penny stocks enjoyed sharp rallies due to strong retail participation and as market players woke up from their slumber to join the party on the local stock exchange.
For the week, the blue-chip benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) eased 8.76 points, or 0.6 per cent, to close at 1,468.75, with most of the losses coming from IOI Corp(-17 sen), CIMB (-14 sen), Genting Bhd (-22 sen) and Tenaga Nasional(-13 sen). Average daily traded volume and value ballooned to 2.3 billion shares and RM1.5 billion respectively, the highest since February this year, compared with the 1.63 billion shares and RM1.43 billion in the previous week, as ACE market and penny stocks continued to attract strong retail participation last week.
Positive vibes seen in the US and European markets last Friday should trickle down to our local market today despite the continued unsettling issues in the eurozone. The fact that the Italian prime minister resigned last Friday to pave way Mario Monti to form a new government that can start working on agreed austerity measures and find ways in reducing its ?1.9 billion debt could help ease the current volatility in financial markets.
This development is important as the Italian 10-year bond yields surged past seven per cent last week, which raised concerns that Italy could be forced to seek a bailout. While intervention from the European Central Bank brought it down to below seven per cent temporarily, a stable government should be able to provide a more coherent and credible economic plan that could pacify investors and stabilise the bond market for now.
However, bear mind that there is no short-term fix for Europe's woes. The bitter pills of austerity measures will have their contractionary impact on gross domestic product and affect the rest of the world. Thus, it is not surprising when Malaysia's central bank maintained its overnight policy rate at three per cent as its last Friday's meeting amid concerns over rising policy uncertainties. It was within market expectations. It may choose to hold rates steady even at the next Monetary policy Committee meeting on January 31 2012 as global adversities could derail the overall growth prospects of the domestic economy, especially in terms of external demand.
While the third quarter GDP figure that will be released on Friday could provide some indication on the economic conditions, it will not be a true reflection of the effectss from current developments in the eurozone where its members are still grappling with debt issues and the agreed austerity measures still at early stage of implementations.
Based on Bank Negara Malaysia's assessment last Friday that the domestic economy had benefited from both international trade and robust domestic demand, the third quarter GDP figure could surprise on the upside against consensus forecast of 4.5 per cent.
On the US front, there are retail sales, housing starts and building permits data this week. Expect no positive surprises amid still weak housing and labour markets.
Technical outlook
In FBM KLCI futures, spot month November traded on Bursa Malaysia Derivatives sank 22.5 points, or 1.5 per cent, last week to 1,457.5, reversing to a wide 11.25-point discount to the cash index, compared to the 2.5-point premium the previous Friday, as investors stayed away from the futures market amid concern external volatility may adversely impact the local stock market.
The FBM KLCI retreated from earlier gains in line with most Asian markets on Tuesday as sentiment turned cautious over the ongoing eurozone financial turmoil, with trading momentum staying robust on lower liners and ACE Market stocks. The FBM KLCI gained 2.95 points to settle at 1,480.46, off an early high of 1,489.91.
Shares on Bursa Malaysia extended gains the next day after data showed China's inflation slowed and Italy's prime minister offered to resign, raising hopes Europe could contain its debt crisis. Active trading continued to focus on ACE Market and penny stocks, while the FBM KLCI climbed 9.18 points to settle at 1,489.64, off a high of 1,490.74, in heavy trade totalling 2.67 billion shares worth RM1.81 billion.
Stocks fell in a correction on Thursday, sparked by heavy losses on overnight US and European markets on concerns over potential spread of the eurozone debt contagion to Italy, and weaker-than-expected regional economic data. The FBM KLCI slumped 16.99 points or 1.14 per cent to 1,472.65, off an early low of 1,466.25, as losers swarmed gainers 568 to 227 on high turnover of 2.64 billion shares worth RM1.46 billion, mostly from ACE Market and penny stocks.
The local stock market recovered ahead of the weekend following the overnight rebound on Wall Street on lower jobless claims and lessening eurozone worries as Greece selected a new premier, with trading momentum still focused on penny stocks. Nonetheless, late profit-taking in blue chips caused the index to close down 3.9 points at the day's low of 1,468.75 on Friday, off an early high of 1,478.33.
The trading range for the FBM KLCI shrank to 24.49 points last week, compared to the 40.64-point range the previous week, as blue chips stayed within narrow trading ranges.
Among other indices, the FBM-EMAS Index lost 32.82 points, or 0.33 per cent to 10,039.33, but the FBM-Small Cap Index rebounded by 101.47 points, or 0.9 per cent, to 11,562.40.
On the technical momentum indicators, the daily slow stochastics for the FBM KLCI flashed another fresh sell signal and dropped below the overbought region, but the weekly indicator stayed bullish after triggering a buy last week. The 14-day Relative Strength Index (RSI) indicator levelled off with a reading of 54.58, while the 14-week RSI deteriorated marginally to read 48.05.
On trend indicators, the daily Moving Average Convergence Divergence (MACD) signal line has dipped and is poised to trigger a sell on further weakness, but the weekly MACD flashed a buy signal last week. The 14-day Directional Movement Index (DMI) trend indicator remained bearish, but the declining ADX line suggested a near-term market consolidation.
Conclusion
While the daily slow stochastics and MACD indicators on the FBM KLCI are bearish following last week's consolidation, bullish readings on the weekly slow stochastics and MACD support further upside in the medium term. Thus, any downside pressure this week should be mild, especially with the strong rise of in the US and European stock markets last Friday likely to draw more investors into equities as risk aversion dwindles.
Chart-wise, prefer blue chips such as AMMB and Maybank, while lower liners like Supermax, MRCB, DRB-Hicom, Kencana and SapuraCrest Petroleum are attractive to accumulate for longer-term upside.
Meantime, ACE Market and penny stocks are likely to continue attracting strong retail participation, with strong expectation of a general election in the first quarter of next year than in the immediate term after the prime minister's statement last week that it will not be held this year potentially easing concerns about market uncertainty in the immediate term.
As for the benchmark index, a decisive breakout above 1,488, the 61.8 per cent Fibonacci Retracement (FR) of the sell-off from the 1,597 record high of July 11 to the recent pivot low of 1,310 on September 26 which matches the 100-day moving average, would move it higher to challenge the more formidable 200-day moving average resistance at 1,508.
A breakout would see the 76.4 per cent FR at 1,529 as the next upside barrier. Immediate support during any profit-taking dips stays at 1,454, the 50 per cent FR, with better retracement support at 1,420, the 38.2 per cent FR, followed by 1,400 and then 1,378, the 23.6 per cent FR.
The subject expressed above is based purely on technical analysis and opinions of the writer. It is not a solicitation to buy or sell.
