Stocks on Bursa Malaysia ended broadly lower yesterday, weighed on by concerns over US debt talks and a downgrade of its credit rating. The uncertain situation in the US kept the market under selling pressure, and investors were getting nervous over whether US lawmakers would be able to reach an agreement to prevent a government default and allow the country to maintain its “AAA” credit rating. The FBM KLCI fell 6.26 points, or 0.4%, to 1,551.91, after hitting an intra-day low of 1,544.96. Losers overwhelmed gainers by 480 to 290 while 274 counters closed unchanged. Volume increased to 1.06 billion shares valued at RM1.74 billion compared with 1.05 billion shares worth RM1.7 billion on Wednesday. 

Taking cue from the weak performance of the Dow overnight, the FBM KLCI opened with a down gap of 2.45 points at 1,555.72, and slid to the intra-day low of 1,544.96 at mid morning, before staging a rebound to close at 1,551.91. Chart-wise, the FBM KLCI formed a black hammer candlestick, which is a bottom reversal candlestick formation. It indicates the bears were initially strong in driving down the share prices, but the bulls later emerged to buy up stocks at low levels. As mentioned in previous analysis, if the FBM KLCI breaks below the 1,550-point psychological level, it is likely to slide towards the 1,540 area, and it did. The key index is now standing on the edge of the cliff, and as the candle formed yesterday is a black one, it indicates the sentiment is still bearish. If the 1,550-point psychological support level cannot be defended, it will continue its downtrend journey to the next lower support level at 1,538. 

MACD continued to slide lower into the negative zone, indicating an increase in the downward momentum. RSI (14) is lower at 38.3, indicating the FBM KLCI has turned bearish. Stochastic continued to slide lower to 15.2, indicating the market strength is becoming weaker and the down cycle is in continuation. Readings from the indicators showed that the FBM KLCI is technically bearish for the short term, and the correction or consolidation may prolong until there are clear signs of bottoming.

The short term trend of the FBM KLCI continued to be down, while the medium term trend has just turned bearish as the key index has now closed below the 60-day moving average (MA). The long term uptrend is still intact. However, it maybe subjected to test very soon. The downside support zone provided by the cluster of long term MAs is at 1,538 to 1,512-point levels, and the key index should be able to see strong support when it approaches this zone.

Overnight, the Dow fell -62.44 points or -0.51% to close at 12,240.11. Today, the FBM KLCI is likely to trade within a range of 1,535 to 1,567.

This week's expected range: 1529 – 1600

Today’s expected range: 1535 – 1567

Resistance: 1557, 1562, 1567

Support: 1535, 1540, 1546