Stocks on Bursa Malaysia closed lower across the board yesterday on persistent selling pressure, particularly in heavyweight counters, dragged the benchmark index to close sharply lower as investors pulled funds amid concern about the political scandal enveloping Prime Minister Najib Abdul Razak and the worsening economic outlook. External factors such as the Chinese economic slowdown, prospects of the Federal Reserve’s interest rate hike in September and bearish commodities prices also worsen the sentiments. The FBM KLCI fell 28.28 points or 1.68% to close at 1,654.37, after fluctuating between 1,649.12 and 1,672.57 throughout the day. Decliners overwhelmed advancers by 923 to 94 with 174 counters unchanged. Total volume rose to 1.91 billion units valued at RM1.99 billion from 1.86 billion units valued at RM1.79 billion on Friday.
Taking cue from the bearish sentiment on Wall Street last Friday, the FBM KLCI opened 10.08 points lower at 1,672.57, the highest point for the day, and slipped lower on persistent selling pressure. The key index hit the intra-day low of 1,649.12 shortly after the opening bell of the afternoon session, losing 33.53 points at its worst, before rebounding slightly to close off low. Chart-wise, the FBM KLCI formed a bearish long black candlestick with a downside runaway gap, indicating the market was in a fearful and panic situation, and fear was the dominant factor in driving the index lower. Hence, the FBM KLCI is likely to continue its downward move today if the bearish sentiment remains. Immediate downside support is at 1,649, follow by 1,644 and 1,632, while the overhead resistance zone is at 1,660 to 1,672.
MACD was sharply lower and its histogram also extended southward substantially, indicating a sharp increase in the bearish momentum. RSI (14) fell to 31.1 from 37.4, indicating the index is turning more bearish for the short term. Stochastic fell to 5 from 21.4, indicating the FBM KLCI was oversold for the short term, and a technical rebound might be expected ahead. Readings from the indicators showed that the FBM KLCI is in a bearish state with increasing downward momentum. However, it is oversold and a rebound is likely to happen.
The trend of the FBM KLCI is down and bearish, and with the breakdown of the critical support at 1,671-point, the key index has started a new leg of the downtrend after consolidating for about five weeks at the 1,685 to 1,738 zone. The 1,671-point is a critical support level as it is also the neckline level for the Head-and-Shoulder chart pattern, and a break of this neckline support level would see a potential downside target of 1,448-point. Based on Elliott wave study, impulse wave-3 of the bigger wave-C has just unfolded and the downside targets based on Fibonacci projection (FP) are 1,652 (50% FP), follow by 1,631 (61.8% FP), 1,604 (76.4% FP), 1,561 (100% FP) and 1,448 (161.8% FP). From a bigger picture, and based on Fibonacci retracement (FR) calculation for the whole uptrend starting from the pivot low of 801.27, registered on October 28th 2008, to the pivot high of 1,896.23 on July 8th 2014, the 23.6% FR support is at 1,637-point, follow by the 38.2% FR support at 1,477; and for the uptrend starting from the pivot low of 1,310.53 on September 26th 2011 to the pivot high of 1,896.23 on July 8th 2014, the FR support levels are 1,672 (38.2%), follow by 1,603 (50%), 1,534 (61.8%), and 1,448 (76.4%). From both the Fibonacci projection and retracement analysis, it seems that 1,448-point is a repeated number that matches the potential downside target of the Head-and-Shoulder pattern.
Overnight, the Dow rose 241.79 points or 1.39% to close at 17,615.17. Today, the FBMKLCI is likely to trade within a range of 1,621 to 1,696.
This week's expected range: 1591 – 1768
Today’s expected range: 1621 – 1696
Resistance: 1668, 1682, 1696
Support: 1621, 1635, 1644
Stocks to watch: BSTEAD, CENBOND, CYBERT, D&O, FBMKLCI-HG, FBMKLCI-HL, FBMKLCI-HM, FBMKLCI-HS, FBMKLCI-HT
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