Review: With the previous week’s rally adding weight to the market and taking the local benchmark index to an intra-week high of 1,840 points, its highest since April 2015, a correction from the overbought condition was to be expected.
Indeed, from Tuesday to Thursday, investors were keen to cash in on recent profits as evidenced by the high trading volumes.
The silver lining amid the pullback is that foreign investors remained strong net buyers of local equity, taking up stocks unloaded by local institutions.
The week started out as an extension of the previous week’s rally, with Monday closing higher by 14.18 points to 1,832.15. Trading volume for the session would prove to be the highest in recent memory, rising to 6.96 billion shares worth RM4.59bil. The local market’s record turnover is 7.67 billion shares achieved on Aug 20, 2014.
From a technical view of things, this lift took overbought conditions too far. The percentage K of the slow-stochastic hit the extreme upper end of the index and with little room to manoeuvre retreated to lower ground.
But the failing momentum on Bursa Malaysia as the week progressed was not unique to the market. The same retracement of gains can be said for other regional markets, which rallied to near all-time highs before investors lost their nerve at midweek on concerns that equities were overheating.
At the start of Tuesday trading, the domestic market opened to optimism, briefly flirting with the 1,840 mark before the bears took over. As the day progressed, heavyweight counters saw active profit-taking, weighing down the index to 1,826.95.
Other parts of Asia remained upbeat, however, edging higher to record highs as they piggybacked on Wall Street’s confidence in earnings and economy.
In commodities, oil prices benefited from another surge of optimism and returned to 2015 levels on a slump in US drilling acvitity.
Going into the midweek, save for China, regional markets took a turn. The technology sector, which had championed much of the Asian rally in 2017, was failing to sustain valuations as South Korea’s Samsung Electronics’s disappointing earnings guidance led to anxiety over the micro chip business cycle.
Investors on Bursa Malaysia found the right excuse to take cash off the table, and shaved 4.03 points off the index to 1,822.92 points.
Even the US major indexes, which had defied gravity on expectations of strong earnings and slowed US interest rate hikes, snapped its six-day winning streak later that evening to suggest the end of a feel-good bull season.
The culprit was a trade spat with Canada, which dampened investor enthusiasm. Experts noted that a US back out of the North American Free Trade Agreement could have negative consequences on the dollar while speculating the currency could face another sluggish year.
This proved to be good news for the ringgit, which took its cue to rise on Thursday against major currencies.
However, the domestic market didn’t move in tandem with the stronger ringgit on Thursday. Perhaps convinced that the market had reached the end of its bull run, investors decided to withdraw their chips.
The correction picked up steam and the market ended 6.04 points lower to 1,816.88.
Some relief was to be found on Friday, as the market halted its descent. Overnight, major Wall Street indexes rose to record highs as the oil prices lended a lift to energy stocks. Asia was likewise re-energised and struck for higher ground.
Back in Malaysia, the optimistic global environment was paired with a strong ringgit push that took it to 3.97 against the greenback, setting the scene for Friday’s technical rebound to 1,822.67 points.
Statistics: For the week, the major index was up 4.7 points, or 0.3% to 1,822.67 points on Friday, versus 1,817.97 on Jan 5. Total turnover for the trading week stood at 27.14 billion shares amounting to RM19.11bil, compared with 19.69 billion units valued at RM13.01bil exchanging hands the prior week.
Outlook: The correction that came this past week was imminent given the overheated market. However, the time taken for prices to correct could prove healthy for Bursa over the long run as was evidenced by yesterday’s technical rebound that took the index beyond the previous week’s close. As at yesterday, the uptrend remained intact.
Going to the technical indicators, the slow-stochastic has dipped below the 50-point halfway mark reflecting the strong pullback seen over the three-day profit-taking.
However, the daily moving average convergence/divergence histogram continues to be healthy. The correction has bent it downwards, but a bearish crossing has yet to occur and it remains afloat in positive territory.
Given the persistent strength of the global equity markets, ringgit and oil, the bulls on Bursa may be tiring but are still very much alive. A tempered uptrend in the weeks leading up to Chinese New Year may be in the books.
The KLCI has come within a day’s reach of 1,825 points, en route to 1,850. On correction, the index will return to the 1,800 level, before seeing a lower cushion at 1,785.