Possible Chinese New Year rally on the cards

REVIEW: Bursa Malaysia kicked off the year 2012 on Tuesday on a soft note, with the benchmark FBM Kuala Lumpur Composite Index (FBM KLCI) easing a significant 7.13 points to 1,523.60 on profit-taking following a last minute spurt prior to the long break.

Despite that, the overall sentiment was mixed. While the quality issues bore the brunt of selling, most second and lower liners managed to chalk up gains as retail investors started taking new positions on expectations of a rally ahead of the Lunar New Year.

A good showing in Asian equities added to investors' confidence. Stocks in the region rose between 0.6% and 2.4%, led by the Hang Seng Index while China, Japan and Thailand were shut on extended holidays.

Apparently, the two-tier market was clearly reflected on the scoreboard. Though the key index was down 17.19 points to 1,513.54 at the closing bell, winners outnumbered losers by 446 to 325 on Tuesday.

Overnight Wall Street opened the new year with a bang, climbing 179.82 points to 12,397.38 and the Standard & Poor's 500-share Index hitting the highest level since late October, spurred by better-than-expected economic data from the United States, China and Germany.

Commodities such as crude oil joined the party, spiking a huge US$4.13 to US$102.96, the best since May 10, 2011, boosted by tensions in the Middle East.

As expected, the local bourse rebounded to a high of 1,525.14 in early deals the next day. However, the positive momentum was quick to fizzle out as most investors turned cautious after the Chinese premier warned of difficult economic conditions in the first quarter, hinting there would not be another massive fiscal stimulus programme.

A lower Hang Seng Index and Shanghai Compsite Index also dampened the local sentiment.

In lacklustre trade, the FBM KLCI reversed early gains to settle down 9.32 points to 1,504.22 in mid-week.

Fortunately, after two days of beatings, some investors emerged from the sidelines to seek value buys. However, with overseas markets turning mixed to lower, they were not willing to chase stocks.

In the absence of strong support from investors, the local bourse fluctuated between a moderate band throughout before ending up 10.21 points to 1,514.43 on Thursday.

In another range-bound session, Bursa Malaysia retraced 0.3 of a point to 1,514.13, after fluctuating between an intra-day high and low of 1,515.27 and 1,508.93 respectively yesterday.

Statistics: On a weekly basis, the major index shed 16.60 points, or 1.1% to 1,514.13 yesterday, compared with 1,530.73 at the close on Dec 31.

Total turnover for the week of 6.399 billion units was valued at RM5.785bil, versus 5.180 billion shares worth RM4.340bil the previous regular week.

Technical indicators: After flashing a sell at the top on Dec 29 last year, the oscillator per cent K and the oscillator per cent D of the daily slow-stochastic momentum index extended their downward momentum to end at 37% and 47% respectively yesterday.

Meanwhile, the 14-day relative strength index pulled back from a reading of 83 to the mid-range in mid-week before heading sideways to settle at 60 points yesterday.

Elsewhere, the daily moving average convergence/divergence (MACD) histogram retained the buy mode, but the uptrend had paused temporarily.

In stark contrast, weekly indicators remained positive, with the weekly slow-stochastic momentum index and the weekly MACD keeping their buy signal.

Outlook: Bursa Malaysia was generally in consolidation mode the past week while some investors opted to lock in gains after the recent climb.

Though the FBM KLCI is still lingering above all the moving averages, there is no clarity as to where the market is heading next, with the nagging fear factor from Europe's debt crisis clouding the global markets and overseas equities losing their lustre.

Should there be a further pullback, losses are likely to be minimal, given the fact that the US economy is showing signs of stabilising. In addition, the expectations of a pre-Lunar New Year rally and the speculations of an early general election would somewhat helped cushion the downside.

Anyway, market punters should know that if there is any pre-Lunar New Year rally, it should come about this week.

Technically, indicators are mixed, implying the local bourse may be trapped within a band until a clearer picture emerges.

Initial support is envisaged at the 1,497-1,500 point band. The lower support is resting at the 21-day simple moving average (SMA) of 1,487 points, the 50-day SMA of 1,475 points, followed by the 100-day SMA of 1,456 points. An additional floor is set at 1,448 points.

Resistance is expected at the 1,545 points. The upper overhead hurdle is anticipated at the 1,565-1.566 point range and the next, at 1,597.08 points, which is the historical peak.


Trend Analysis
By K.M. LEE, http://biz.thestar.com.my