FBM KLCI - lower on rate hike fear

Stocks on Bursa Malaysia finished on an easier note yesterday in cautious trading, in tandem with most regional peers as the upbeat US jobs growth fuels talk of a Federal Reserve (Fed) rate hike. Indices of most Asian stock markets slipped lower, after strong US employment data bolstered expectations of a Fed interest rate hike before year-end. The benchmark FBM KLCI fell 5.88 points, or 0.34% to close at 1,739.45, after hovering between 1,727.01 and 1,741.11 throughout the day. Losers outpaced gainers by 532 to 254 with 308 counters unchanged. Total volume rose to 1.24 billion units worth RM1.38 billion from 1.18 billion units worth RM1.32 billion on last Friday.

Taking cue from the losses on Wall Street last Friday, the FBM KLCI opened 9.26 points lower with a downside gap at 1,736.07 and plunged to the intra-day low of 1,727.01 twenty five minutes after opening. The key index rebounded from the low and moved higher gradually for the rest of the day. It touched the intra-day high of 1,741.11 just before closing. Chart-wise, the FBM KLCI formed a bullish white hammer candlestick, a bottom reversal candlestick pattern which indicates the appearance of buying support. However, to confirm the reversal, the FBM KLCI will have to at least close above Friday’s high of 1,746. Otherwise, the key index may continue to consolidate. Immediate overhead resistance zone is at 1,741 to 1,750, while the downside support zone is at 1,732 to 1,727.

MACD was flat while its histogram further contracted upward, indicating further reduction of the bearish momentum or a state of consolidation. RSI (14) hooked downward to 28.1 from 29.9, indicating a pullback of the key index after a rebound. Stochastic hooked down slightly to 13.1 from 14.5 and is still staying above the slow stochastic line, indicating a pullback correction. Readings from the indicators showed that the FBM KLCI is in consolidation mode, and is likely to further consolidate.

The trend of the FBM KLCI still remained down as the key index continued to stay below the short, medium and long term moving averages. Nonetheless, the price action of the FBM KLCI over the last five sessions showed buying support for the key index at current level, and hence, the FBM KLCI is likely to further consolidate within a range of 1,730 to 1,750. However, a further break of the immediate support at 1,727 will likely see the FBM KLCI sliding lower toward the next lower support zone of 1,718 to 1,700. On the broader market, trading activity has greatly reduced as shown by the relatively low trading volume, indicating the market is consolidating.

Overnight, the Dow fell 82.91 points or -0.46% to close at 17,766.55. Today, the FBMKLCI is likely to trade within a range of 1,716 to 1,755.

This week's expected range: 1714 – 1771
Today’s expected range: 1716 – 1755

Resistance: 1744, 1749, 1755
Support: 1716, 1721, 1730

Stocks to watch: BARAKAH, CMSB, DSONIC, DOMINAN, ECS, EVERGRN, FLBHD, HEVEA, HOMERIZ, KESM, LEONFB, MYEG, SIGN, SLP, SOLID, TEKSENG, 3A, UCHITEC

Stock pick highlight: ECS (5162)

Last Price: RM1.74 +0.04
Support Level: RM1.67, RM1.63
Resistance Level: RM1.77, RM1.80, RM1.83, RM1.85, RM1.88, RM1.90, RM1.93, RM1.97, RM2.00, RM2.05, RM2.17
Entry Level: RM1.73 – RM1.76

Technical Analysis

ECS (5162) rebounded from its intra-day low of 1.71 to close higher at 1.74 after hitting the intra-day high of 1.77. Technically, the chart of ECS formed a bullish white candlestick with increasing volume indicating buying interest came into the stock yesterday. It breaks out from the consolidation range forming a small Saucer pattern breakout. MACD swung upward and made a golden-cross over the signal-line, and its histogram also extended upward, indicating an increased in momentum to the upside and a buy signal. RSI (14) rose to 63.2 from 57.3, indicating the stock is turning bullish. Stochastic was higher at 36.7 from 23.3 and is above the slow stochastic line, indicating the stock is turning stronger after recent consolidation. The medium and long term trend of ECS is up, and the short term trend is also up with the 5-day SMA crossing above the 10-day SMA and both are above the 30-day SMA, and a confirmed breakout above RM1.77 will see an upside target of RM1.80, follow by RM1.83, RM1.85, RM1.88, RM1.90, RM1.93, RM1.97, RM2.00, RM2.05 and RM2.17.

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 (RM1.77). Those with lower risk appetite should wait at the side-line and buy on the dip.

Price Objective
Short Term – target price at (RM1.80, RM1.83, RM1.85 RM1.88, RM1.90), stop loss (RM1.66)
Mid Term – target price at (RM1.93, RM1.97, RM2.00, RM2.05, RM2.17), stop loss (RM1.62)

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