Post window-dressing pullback on Bursa likely

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THE FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) climbed to close at a record high last week, extending gains to a fourth straight week on sustained window-dressing support.

Gains were backed by optimism Japan and China will lead an Asian recovery on increased stimulus measures and improving economic data, which offset concerns on disagreements by politicians over the US fiscal cliff situation.

In the final full week of 2012, the FBM KLCI rose 22.48 points, or 1.36 per cent to 1,681.33, with gains in Axiata (+17 sen), Public Bank (+28 sen) Sime Darby (+14 sen), and Genting Bhd (+20 sen) representing about 45 per cent of the index’s rise.

Average daily traded volume and value dwindled to 730.1 million shares and RM985.3 million, compared with 774.9 million shares and RM1.31 billion in the previous week, as more investors stayed on the sidelines ahead of the year-end holidays.

Last week’s strong buying support from local institutional funds ahead of year-end closing and the subsequent rise of the benchmark index on the back of thin volume was within expectations but not the new high at the tail-end of the year.

The Chinese government’s announcement of an expansionary fiscal policy by raising its budget deficit to boost urbanisation and consumer demand to spur domestic recovery had a hand in it as it succeeded in partly diverting investors’ attention from the looming US fiscal cliff and pushed regional equity markets higher. Expectations for Japan to loosen further its monetary policy and undertake significant expansionary measures next year to revive its economy swayed attention away from the US and Europe momentarily as well.

Looking ahead into this week, the benchmark index could struggle to hold on to its gain today after Wall Street’s poor performance last Friday and final doubts whether the US Congress can come to a conclusion by today to avert the world’s largest economy from falling off the fiscal cliff.

Most likely, the Democrats and the Republicans will agree to compromise on their demands to allow tax increases and spending cuts to prevent the automatic spending cuts from nullifying the past economic revival efforts that have started showing results. A positive outcome from the US along with a strong indication from China’s December Purchasing Manager’s Index that would be released tomorrow could provide further boost for the market to sustain its uptrend before profit-taking pressures set in.

As highlighted last week, this could propel the FBM KLCI to test the 1,700 psychological barrier in early 2013 but it should be seen as a prolonged opportunity to take profit in view of the impending political risk domestically and uncertain economic climate in the US and Europe. Even if the US succeeded in averting a fiscal cliff in the immediate term, it is on the brink of hitting the US$ 16.4 trillion debt limit by next week and this issue will keep resurfacing in 2013.

It will limit the government’s ability to spearhead economic recovery as the US Fed runs out of ammunition after exhausting itself from the ultra-accommodative monetary policy.

On the back of a potentially weak economic growth in the US, still daunting challenges in the Eurozone that is stuck in a recessionary cycle and yet to be seen expansionary measures from China and Japan, the hope is on our domestic measures to support economic growth while waiting for external demand to recover.

So it is wise to cling to domestic-oriented sectors like Construction, Oil and Gas and Property to ride through this uncertain period while taking profit on some of the overstretched sectors like Consumer and Brewery. Although plantation stocks were battered recently after the slide in CPO prices, there is no significant short-term catalyst to revive the sector on the back of increasing supply and rising stock levels vis-à-vis less robust demand growth.

Technical outlook

The local stock market firmed up last Monday, supported by buying interest in selected heavyweight and index-linked counters, in line with most regional markets on quiet pre-holiday trade after a slump late last week, as sentiment remained cautious over the fiscal uncertainty in the US. The index closed 10.55 points higher to settle at 1,669.40, off a high of 1,674.49, as losers beat gainers 324 to 279 on weak trade of 620.09 million shares worth RM801.1 million.

Stocks stayed rangebound in quiet post-Christmas holiday trade on Wednesday, in spite of regional strength led by the Japanese market due to the yen’s weakness and after the prime minister promised to promote more stimulus measures. The local benchmark ended 2.18 points up at 1,671.58, off an early low of 1,665.83, as gainers Bursa Malaysia extended gains the following day, encouraged by regional strength due to potential for renewed stimulus measures from Japan to support growth and signs of economic recovery in China. The local index added 2.58 points to close at 1,674.16, off a high of 1,679.23, as gainers led losers 396 to 278 on improved trade totalling 847.5 million shares worth RM1.16 billion.

Blue chips sustained gains ahead of the weekend, pushing the index up to record highs on optimism Japan and China will lead an Asian recovery on increased stimulus measures and improving economic data and offset concerns over the US fiscal cliff situation.

The local blue-chip index climbed 7.17 points on Friday to settle at 1,681.33, off a record high of 1,686.70, as gainers beat losers 436 to 255 on steady trade totaling 853.8 million shares worth RM1.27 billion.

Trading range for the local benchmark index was 26.84 points last week, which is almost similar to the 26.82 points range the previous week.

The daily slow stochastic indicator for the FBM KLCI continued to level off at the extremely overbought region after last week’s rally to a record high, reinforcing the buy signal on the weekly indicator. However, the 14-day Relative Strength Index (RSI) momentum indicator has registered an initial overbought reading of above 70, while the 14-week RSI climbed to a more bullish reading of 63.49.

Meantime, the daily Moving Average Convergence Divergence indicator (MACD) expanded higher to signal stronger uptrend, while the weekly MACD indicator is set to trigger a buy signal on further strength. As for the DMI trend indicator, the +DI and and#8211;DI lines on the 14-day Directional Movement Index (DMI) trend indicator expanded positively on a rising ADX line to suggest uptrend resumption.

Conclusion

Technical indicators continue to issue conflicting signals, with grossly overbought short-term momentum suggesting a profit-taking pullback is highly likely post-window-dressing as the market begins trading in the first week of 2013, but trend indicators turned positive to imply resumption of the prior uptrend ahead. Moreover, buoyant Asian markets, lifted by optimism that increased stimulus measures from Japan and China’s resilient economy would overshadow concerns over the final lap of US fiscal cliff talks, should provide underlying support for the local market.

While the FBM KLCI closed above the previous October 29 record high of 1,679, profit-taking may yet spark a correction to cover last Friday’s gap-up, before substantial buying interest returns as most investors would be anticipating a post window-dressing pullback. Hence, look for buying support to resurface closer to the 10-day moving average, currently rising to 1,655, which is reinforced by stronger support from the 23.6 per cent Fibonacci Retracement (FR) of the rise from the 1,526 pivot low of May to the 1,679 record high at 1,643.

Going forward, the index should resume uptrend to challenge next immediate hurdles of 1,700, 1,715 and 1,738, which are the respective 123.6 per cent and 138.2 per cent Fibonacci Projection (FP) levels.

In the first trading week of the New Year, any further rallies in blue chips such as AirAsia, CIMB, Genting Malaysia, Maybank and RHB Capital should attract keen profit-taking interest post window-dressing, as buying interest switch to focus on lower liners such as DRB-HICOM, Perisai Petroleum and Perdana Petroleum on rotational plays.

I would like to take this opportunity to wish “Happy and Prosperous New Year’ to all readers.

The subject expressed above is based purely on technical analyses and opinions of the writer. It is not a solicitation to buy or sell.

Business Times : marketwatch

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