STRONG PROFIT-TAKING SEEN THIS WEEK
DESPITE most investors being away for Christmas and year-end holidays, persistent window-dressing activity in oil and gas, and consumer and utility heavyweights helped shore up the blue-chip benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) to end the year at the highest in more than three months.
In the final week of last year, the FBM KLCI rallied 36.57 points, or 2.1 per cent, to close the year at 1,796.81, with Nestle Bhd, Petronas Gas Bhd, Hong Leong Financial Group, KLCC, Kuala Lumpur Kepong Bhd and Sime Darby Plantation Bhd contributing to most of the index’s rise. Daily traded volume and value improved mildly to 2.54 billion shares worth RM2.11 billion, compared with the 2.44 billion shares worth RM2.19 billion in the previous week.
Last week’s rally was within expectation. Although the 1,800psychological level proved to be a tough nut to crack again, it should be within reach in the first quarter. The post year-end window dressing rally that actually started early last month and ended on a very high note, we can anticipate some profit-taking corrections in the first trading week of this year as investors return from year-end holidays.
Besides, the strength of the ringgit, which hit RM4.04 against the US dollar last week, could prompt some foreign funds to lock in their profits at current attractive levels. Expectations for a pullback in last week’s crude oil price rally could also contribute to that.
Anticipation of a hawkish tone in the the Federal Open Market Committee meeting minutes and the still strong United States non-farm payroll data, which will be released later this week, could also underscore the weakness in the benchmark index. As such, profit-taking is likely to surface to stall gains in this first four-day trading week, but trading momentum should stage a comeback as investors return to participate after the year-end holiday break.
The upside momentum should remain intact in the run-up to the 14th general election (GE), supported by strong economic fundamentals, recovery in corporate earnings and stable outlook for crude oil and the ringgit. In the immediate-term, Malaysia’s exports for November, which will be released on Friday, may not disappoint, judging from the still robust trade data from major trading partners.
No doubt market undercurrent would turn cautious upon the dissolution of Parliament to pave way for the 14th GE (potentially in March or April), but the magnitude of correction in the benchmark index would be highly dependent on the election strategies pursued by the political parties.
Technical Outlook
The local market stayed in profit-taking consolidation mode last Tuesday. The FBM KLCI inched down by 0.25 point to 1,759.99, off an early low of 1,753.25 and high of 1,760.45 as losers edged gainers 489 to 387 on a slower turnover of 2.06 billion shares worth RM1.6 billion. Strong gains in key O&G heavyweights lifted the benchmark index to a fresh three-month high the next day, spilling over to lower-liner peers and mending sentiment on the broader market.
The FBM KLCI surged 11.77 points to close at the day’s high of 1,771.76, off the opening low of 1,760.69 as gainers led losers 578 to 334 on higher turnover of 2.31 billion shares worth RM1.99 billion.
The blue-chip benchmark was shored up to the highest in more than three months on Thursday, and encouraged rotational plays on lower liners. The FBM KLCI added 7.34 points to close at 1,779.10, off an early low of 1,769.60 and high of 1,781.84 as gainers edged losers 467 to 444 on improved turnover of 2.64 billion shares worth RM2.1 billion.
After staying range bound for most of Friday’s session, late window-dressing activity propped up the index to re-test the year high ahead of the New Year weekend break, while profit-taking and selling were well-absorbed. The index climbed 17.71 points to close at 1,796.81, the highest since May 2015 as gainers led losers 489 to 468 on strong turnover totalling 3.13 billion shares worth RM2.76 billion.
Trading range for the local blue-chip index last week grossly expanded to 43.56 points, compared with the 27.31 points range in the previous week as key heavyweight blue chips rallied to lift it for a close at a fresh twoand-a-half-year high. For the week, the FBM Emas Index climbed up 280.82 points, or 2.2 per cent, to 12,942.57, while the FBM Small Cap Index rose 262.17 points, or 1.5 per cent, to close the week at 17,050.87.
The daily slow stochastic momentum indicator for the FBM KLCI climbed deeper into overbought territory following last week’s late window-dressing rally, which pushed up the weekly indicator’s signal line sharply above the neutral region.
The 14-day Relative Strength Index (RSI) indicator was officially in overbought territory as of last Friday with a high reading of 75.64, while the 14-week RSI rose to 65.61.
As for trend indicators, the daily Moving Average Convergence Divergence (MACD) registered more bullish expansion, which triggered a “buy” signal on the weekly MACD indicator. The +DI and –DI lines on the 14-day Directional Movement Index (DMI) trend indicator also expanded, backed by a rising ADX line, suggesting a strengthening up-trend.
Conclusion
Given last Friday’s robust lastminute window-dressing rally, the key blue-chip benchmark should encounter strong profittaking and selling interest at the start of the week.
Nonetheless, a healthy profittaking correction is a welcomed respite as overbought momentum needs to be adequately neutralised for the uptrend to stick in the new year.
As such, a profit-taking pullback is very likely this week, with 1,782 and 1,765 acting as key resistance-turn-support levels, followed by 1,757 and 1,754, the 200 and 100-day moving average levels, and stronger supports from 1,737 and 1,735, the respective 50 and 30-day moving averages. On the flipside, the 1,800 psychological level and 1,823 will be formidable upside hurdles.
The upside momentum should remain intact in the run-up to the 14th general election, supported by strong economic fundamentals, recovery in corporate earnings and stable outlook for crude oil and the ringgit.