FBM KLCI - sign of bottoming

Stocks on Bursa Malaysia closed lower yesterday with the local benchmark index ended lower on across-the-board selling as unfavourable external developments clouded the local market. The local market reacted negatively to better-than-expected housing and manufacturing data in the US released Tuesday, as this would boost chances of an interest rate hike by the Federal Reserve this year. Anticipation of higher US interest rates does not bode well for emerging Asian markets like Malaysia as global funds flow back into US-based assets. As such, the ringgit weakened to 3.6365 against the US dollar yesterday. The FBM KLCI was 9.02 points or 0.51% easier to close at 1,755.05, after hovering between 1,749.78 and 1,758.35 throughout the day. Losers outpaced gainers by 506 to 274, while 327 counters were unchanged. Total volume rose to 1.78 billion units worth RM2.19 billion from 1.58 billion units worth RM1.93 billion on Tuesday.

Following the weak performance on Wall Street overnight, the FBM KLCI opened 5.72 points lower at 1,758.35, the intra-day high level, and slipped lower for a major part of the day on continuous selling pressure with weak intermittent rebound. The key index hit the intra-day low of 1,749.78 at mid-afternoon before it staged a strong rebound in the last hour to lift the index to close off low. Chart-wise, the FBM KLCI formed a black hammer candlestick, a single day bottom reversal candlestick pattern, which indicates the appearance of late buying support after initial selling pressure. Hence, the FBM KLCI is likely to stage a technical rebound today if the late buying momentum continues into today. Immediate downside support zone is at 1,749 to 1,746, while the overhead resistance zone is at 1,758 to 1,764.

MACD and its histogram continued to slide lower, indicating further increased in the bearish momentum. RSI (14) was lower at 26.4 from 28.6, indicating the FBM KLCI is very bearish for the short term and is deeper into the oversold zone. Stochastic hooked downward to 8.4 from 10.7, indicating continuation of the bearish down cycle and was oversold. Readings from the indicators showed that the FBM KLCI is bearish and oversold, and hence, a technical rebound is imminent.

The technical picture of the FBM KLCI still remained bearish and the trend remained down. Nonetheless, the selling pressure has reduced as can be seen from a smaller daily range when compared with the previous few days’ daily range, and the hammer candlestick also indicated that buyers has appeared at current level which lifted the key index to close right at the support level of 1,755. Thus, the FBM KLCI may stage a rebound or further consolidate at current level.

Overnight, the Dow rose 121.45 points or 0.67% to close at 18,162.99. Today, the FBMKLCI is likely to trade within a range of 1,741 to 1,767.

This week's expected range: 1727 – 1866
Today’s expected range: 1741 – 1767

Resistance: 1759, 1763, 1767
Support: 1741, 1745, 1750

Stocks to watch: ASDION, JAKS, JHM, K1, KBES, KPSCB, MELATI, MMCCORP, OPENSYS, PERWAJA, RCECAP, SKPRES, SLP, SOLUTN, TOMYPAK

Stock pick highlight: OPENSYS (0040)

Last Price: RM0.405 +0.07
Support Level: RM0.37, RM0.325
Resistance Level: RM0.41, RM0.42, RM0.43, RM0.45, RM0.475, RM0.485, RM0.50, RM0.525, RM0.55, RM0.585, RM0.63
Entry Level: RM0.40 – RM0.41

Technical Analysis

OPENSYS (0040) rebounded from its intra-day low of 0.37 to close higher at the intra-day high of 0.405. Technically, the chart of OPENSYS formed a bullish white candlestick with increasing volume indicating strong buying interest came into the stock yesterday. It breaks out from the consolidation range forming a Rectangle pattern breakout. MACD swung upward and made a Golden-cross over the signal-line, and its histogram also extended upward strongly, indicating an increased in momentum to the upside and a buy signal. RSI (14) rose to 66.1 from 39.5, indicating the stock is turning bullish from a bearish state. Stochastic hooked upward to 61.8 from 32 and made a Golden-cross over the slow stochastic line, issuing a stochastic buy signal and indicated a strong bullish reversal. The medium and long term trend of OPENSYS is up, and the short term trend is turning up with the 5-day SMA staying below the 10-day SMA and both are below the 30-day SMA, and a confirmed breakout above RM0.41 will see an upside target of RM0.42, follow by RM0.43, RM0.45, RM0.475, RM0.485, RM0.50, RM0.525, RM0.55, RM0.585 and RM0.63.

Since the short term trend is bullish, day traders with shorter time frame perspective may ride on the short term bullishness and buy on breakout level (RM0.41). Those with lower risk appetite should wait at the side-line and buy on the dip.

Price Objective
Short Term – target price at (RM0.42, RM0.43, RM0.45, RM0.475, RM0.485), stop loss (RM0.365)
Mid Term – target price at (RM0.50, RM0.525, RM0.55, RM0.585, RM0.63), stop loss (RM0.32)

Disclaimer: The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. The Stocks to watch is not a recommendation to buy or sell the particular stock, as it is only meant for graduates of the "Share Trading the Pro Way" course as case study. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

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