ZLBT Chats

Monday, February 28, 2011

ZLBT's Morning Markets Outlook : FBMKLCI, FKLI and DJIA

FBMKLCI May Snap Losing StreakThe Malaysian stock market shed less than a point on Friday - but that was enough to extend its losing streak to four sessions, costing it more than 35 points or 2.2 percent in that span. The Kuala Lumpur Composite Index remained just below the 1,490-point plateau, although now analysts are forecasting a modest rebound at the opening of trade on Monday.
The global forecast for the Asian markets is generally positive, although the upside is likely to be limited by surging oil prices and tensions in Libya. Oil companies are expected to provide support, along with technology, finance and property stocks. The European and U.S. markets finished firmly higher on Friday, and now the Asian markets are expected to follow suit.

The KLCI finished flat on Friday as softness from the financial shares and plantation stocks was pared by support from the industrials.

For the day, the index eased 0.60 points or 0.04 percent to finish at the daily low of 1,489.27 after peaking at 1,499.44. Volume was 1.38 billion shares worth 1.79 billion ringgit. There were 524 gainers and 300 decliners, with 258 stocks finishing unchanged.

Among the actives, Kuala Lumpur Kepong finished lower, while CIMB Holdings was unchanged and IOI Corporation, RHB Capital, Petronas Chemicals and YTL Corporation all ended higher.

The FBMKLCI rebounded on Friday after oil prices retraced to US$97 a barrel overnight from a 29-month high of US$103.4 as the US, Saudi Arabia and International Energy Agency gave an assurance that they can compensate for any disruption to Libyan shipments. However, the local benchmark index lost 0.6 points to close at the day's low of 1,489.27, off an early high of 1,499.44, pressured by falls in Tenaga, Maybank and KLK, as gainers led losers 524 to 300 in cautious trade which totalled 1.39 billion shares worth RM1.79 billion. The trading range last week expanded to 37.82 points, compared with 27.02 points in the previous week.

The lead from Wall Street is optimistic as stocks saw substantial gains on Friday, with easing volatility in the price of crude oil drove buying interest in the recently battered equity markets. Traders largely looked past a weaker than expected reading on fourth quarter GDP growth and a consumer sentiment reading that surprised to the upside in the U.S.

Downside bias for FKLI
THE February FBM KLCI futures contract on Bursa Malaysia Derivatives closed lower at 1,492.50 with an open interest of 10,727 contracts last week.

Consolidative sentiment continued to dominate trading last week. Volatility picked up, as did selling pressure, pushing the spot contract below 1,500 before closing the week lower at 1,492.50. However, it was a hard-fought victory for the sellers as the spot contract had rallied to a high of 1,523 early last week before finally caving in to the pressure.
The bulls' bigger worry is over the longer term as the market's weekly momentum has been unable to pick up pace. The main concern can be found in the Relative Strength Index (RSI) as it continues to slide further. It has been declining since the beginning of this year and has yet to find the floor at the oversold territory lines.

The RSI's predicament has been compounded by the negative crossover on the Moving Average Convergence Divergence indicator (MACD). The spot contract has yet to turn around in the face of this double whammy despite its numerous attempts to stage a recovery.

The shorter term indicators were slightly more positive when the market closed last week. The RSI and the Commodity Channel Index have both turned upwards after a recovery from last week's low of 1,481.

Though this may entice buyers back into the market, they should be wary of a "dead cat bounce" as the bigger picture may continue to favour the shortists.

The close of the March contract at 1,482 implies that as rollover activities continue into this week, it will not be a rosy picture for the buyers as the February contract traded at a 10-point premium with one day left before its expiration.

Support this week may hold at 1,471 where the spot contract intersects the lower Bollinger band on the daily chart. This may present a better entry opportunity for interested buyers as the overall market recovery still hinges on geopolitical issues which may take time to resolve.

This week, the spot contract may still find it challenging to rejuvenate its momentum. Though the market has somewhat located some support at the current level, it will still take time for it to return to bullish mode.

Breaking the psychological 1,500 level does not signal a strong milestone. Instead, it may entice sellers into the market. Entry at key support level for could serve as a better strategy as the index futures spot contract is still consolidating with downside bias.

Technical reports

The MACD remains negative with the faster below the signal line. Both lines remain at the positive region. Meanwhile, the daily RSI and the daily CCI closed at the neutral.

Spot month February KLCI futures contract traded on Bursa Malaysia Derivatives tumbled 33.5 points, or 2.2 per cent, week-on-week to 1,482.5, deteriorating to a 6.77-point discount to the cash index, compared to the minor 1.56-point discount the previous Friday. Long liquidation and panic selling forced the bulls to cut losses on their futures trading positions.
Technical Outlook : Dow Jones Industrial Average
The Dow closed higher due to short covering on Friday as it consolidates some of this week's decline but remains below the 20-day moving average crossing at 12,155. The high-range close sets the stage for a steady to higher opening on Monday. Stochastics and the RSI remain bearish signaling that sideways to lower prices are possible near-term. If the Dow extends this week's decline, the reaction low crossing at 11,803 is the next downside target. Closes above the 10-day moving average crossing at 12,229 would confirm that a short-term low has been posted. If the Dow renews this winter's rally, the January 2008 high on the weekly continuation chart crossing at 12,767 is the next upside target. First resistance is the 10-day moving average crossing at 12,229. Second resistance is Tuesday's high crossing at 12,389. First support is Thursday's low crossing at 11,983. Second support is the reaction low crossing at 11,803.

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