Technical Outlook For 2H June >>> December 2011

Dismay in May >>> Semblance of a subdued market until Q4

Bursa Malaysia shares slumped in line with global markets early May sparked by a steep correction in crude oil prices, which lost almost 7% in a matter of days due to weaker global growth outlook, and also concern over contagion from the Greek debt crisis. However, a rally on defensive plantation stocks cushioned downside, with optimism that a strengthening ringgit will check inflationary pressure adding fuel to push the benchmark index higher towards the end of the month. The domestic stock market was also boosted by the government’s blessing for CIMB and Maybank to start merger negotiations with RHB Bank.

For the month of May, the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) climbed 23.34 points or 1.52% to close at 1,558.29, with gains on Tenaga (+RM1.10), HL Bank (+RM1.88), CIMB (+18sen) and Maybank (+16sen) contributing the most to the index’s rise. Average daily traded volume and value for May dwindled to 918.7mn shares worth RM1.56bn, the slowest since August last year, compared with the 1.24bn and RM1.67bn average in April.

On the external front, stock markets in China and India tumbled by more than 5.8% and 3.3% respectively on concern over further interest hikes amid rising inflation, followed by Germany’s GDAX and South Korea dipping by almost 3% and 2.3% respectively given concern on slowing global economy. Year-to-date, however, the US Dow Jones Industrial Average topped the gainers, sustaining its uptrend with an 8.6% gain, followed by the S&P500 (+6.96%), Nasdaq (+6.88%), GDAX (+5.5%), South Korea (+4.46%), Thailand (+3.98%) and Jakarta (+3.6%). On the flipside, the Shenzen stock exchange slumped 13.9%, followed by India (-9.8%), Japan (-5.2%) and Shanghai (-2.3%).

Small cap stocks fell into correction mode last month, with the FTSE Bursa Malaysia Small Cap (FBMSC) index, a capitalization weighted index of the top 98% of main board stocks, excluding the FTSE Bursa Malaysia 100 (FBM100) index, tumbling 311 points, or 2.4% to settle at 12,791.13. The FTSE Bursa Malaysia EMAS (FBMEMAS) index, a capitalization weighted index of stocks in the FBM100 and FBMSC, however, recovered by 115.08 points, or 1.1% to 10,691.17. Year-to-date, the FBMSC is still up 1.3% while the FBMEMAS gained 3.05%.

KLCI Consolidates Above the 50 and 100-day Moving Averages

The FBM KLCI dipped to a six-week low of 1,507.64 on 6 May (Chart 1), breaching the lower Bollinger band, but swiftly reversed upwards on a V-shape rebound and subsequently consolidated above the 50-day and 100-day moving averages for the rest of the month. A rally on banking stocks on the last trading day of the month lifted the index up to high of 1.566.29, the highest since the 4 April peak of 1,565, boosting the trading range to a wide 58.65 points for the month.

Fibonacci Projection Upside Targets at 1,655/1,704/1,743/1,782/1,831 by 2012
Following the recovery in May, the signal line on the MACD indicator on the weekly chart is converging with the MACD line (Chart 2), suggesting good recovery potential. A confirmed breakout above the January peak of 1,576, which should eventuate by the second half of this year, would then lift the index up to record heights. Using the Fibonacci Projection (FP) method, subsequent upside targets upon a breakout are at 1,655, 1,704, 1,743, 1,782 and 1,831, representing the respective 23.6%FP, 38.2%FP, 50%FP, 61.8%FP and 76.4%FP of 1,243 low (27 May 2010) to 1,576 high (6 Jan 2011).
These projected upside targets are likely to be achieved as the market trade towards 2012.

SUMMARY >>> KLCI to Target 1,813 by End 2011
Despite bouncing off a two-month consolidation above the 50 and 100-day moving averages in late May, the KLCI is not out of the woods yet and could stay in consolidation mode in June given the weak buying momentum (Chart 3). The index has to overcome the 4 April peak of 1,565 sustained by strong buying momentum to have any chance of challenging the record high of 1,576 of 6 January for a breakout.

Nonetheless, a breakout should eventuate by the second half of this year, resume the wave (3) rally from the March 2009 low of 836, and aim for upside target of 1,813 by end 2011. Alternately, using the Fibonacci Projection method, subsequent upside targets upon a breakout are at 1,655, 1,704, 1,743, 1,782 and 1,831 by 2012.

HAPPY INVESTING & GOODLUCK2ALL