THE FBM KLCI Index managed to break out to a new record high last week, driven by selected heavyweights and index-linked plantation stocks, ignoring the key regional market performance that was rattled by the United ed States Federal Reserves's (Fed) tapering concern. The stronger-than-expected economic data from the US and the bipartisan budget deal from Congress raised expectations that the Fed could start scaling back its stimulus measures as early as this week. Week-on-week, the FBM KLCI gained 13.40 points, or 0.73 per cent to 1,840.35, with Maybank ( +19 sen ), Sapura Kencana ( +20 sen ), Genting Malaysia ( +0.22 sen ) and Telekom ( +19 sen ) accounting for slightly more than half the index's rise. Average daily traded volume and value were at 1.19 billion shares and RM1.8 billion , compared with 1.18 billion shares and RM1.7 billion , respectively, in the previous week, as blue chips attracted more trading participation from local funds ahead of year-end window-dressing. Lofty valuations from a fundamental perspective (trading at CY14 PER of 15.7x and 14.5 per cent premium to regional peers) and an overbought condition from a technical viewpoint could subject the benchmark index to some healthy profit-taking consolidation this week. The immediate-term downside risk will emerge mainly from the US front as investors stay alert to possibilities of a downshift in Fed's bond-buying programme this Thursday after recent strong economic data from the US, hawkish comments from some Fed members and a bipartisan budget deal have enhanced the probability of a tapering decision. Nonetheless, anticipate local institutional funds to extend buying support to smoothen any extreme volatility, should the Fed decides to begin tapering, ahead of year-end window dressing activities. That aside, this columnist still believes that the Fed would refrain from firing the shots in December based on economic data that are subjected to seasonality, when the unemployment rate and inflation gauge are still far away from its prerequisite threshold of 6.5 and 2.0 per cent, respectively. With the US annual inflation rate at a four-year low of one per cent in October, deflationary pressures have not dissipated and could remain a strong reason for the Fed to defer tapering decision to next year. Perhaps, the CPI data for November that would be released this Tuesday could shed some light on this. Delays in tapering would be a good enough reason for our local market to cheer and extend the current rally until Chinese New Year . As for stock specifics, oil and gas counters could remain in the limelight this week with Petronas dishing out RM10 billion worth of offshore transportation and installation contracts to three players, based on last Friday's announcement. Having secured 67 per cent of the contract or RM6.7 billion , SapuraKencana's value proposition has enhanced significantly with orderbook rising above the RM30 billion mark. Its multi-year earnings catalysts remained intact from the recent acquisition of Newfield Exploration Co's oil and gas assets in Malaysia , growing contributions after acquiring Seadrill's tender rig assets and business, and potentially securing more large fabrication, risk sharing contracts and production sharing contracts locally. With financial year 2013-2017 earnings compounded annual growth rate of 47.4 per cent, its CY15 PER of slightly more than 14x stipulates there is still plenty of room for price appreciation. Besides oil and gas, undervalued blue chips like Axiata , Maybank , Telekom and FGV could still attract rotational interest to bump up the index ahead of year-end. Technical Outlook Spot month November KLCI futures contract traded on the Bursa Malaysia Derivatives Bhd added 11.50 points, or 0.63 per cent, last week to close at 1,832.50, for a 7.85-point discount to the cash index, compared to the 5.95-point discount to the previous Friday. The benchmark FBM KLCI surged to close at a record high Monday, boosted by gains on core oil and gas and plantation stocks, after strong economic data from the US and China fuelled optimism for economic recovery. The index ended 14.92 points up at 1,841.87, off an opening low of 1,826.93 and a record intra-day high of 1,84362, as gainers led losers 457 to 294 on moderate trade totaling 1.13 billion shares worth RM1.43 billion . The local stock market climbed to a fresh record high the following day, driven by selected heavyweights and index-linked plantation stocks, ignoring key regional markets which turned lower ahead of China's data and Fed's tapering concern. The FBM KLCI added 1.98 points to close at 1,843.85, off an opening low of 1,837.80 and record intra-day high of 1,846.92, as gainers edged losers 391 to 375 on trade totalling 1.4 billion shares worth RM2.01 billion . Bursa Malaysia shares retreated on Wednesday after reaching lofty levels from the previous session, weighed down by mild profit-taking in index-linked stocks and with key regional bourses following US markets lower, as investors continued to worry over the potential impact from reduced Fed stimulus. The FBM KLCI eased 1.03 points to close at 1,842.82, off a low of 1,839.73 and high of 1,845.69, as losers beat gainers 420 to 334 on trading volume of 1.15 billion shares worth RM2.07 billion . The local market slipped further next day, in line with key regional markets, spooked by the overnight fall on Wall Street as the stimulus tapering anxiety continued to haunt investors. The benchmark index fell 8.95 points to close at 1,833.87, off a low of 1,833.12 and high of 1,840.54, as losers edged gainers 407 to 320 with volume totalling 1.07 billion shares worth RM1.63 billion . The local market extended profit- taking consolidation on Friday with key regional markets mostly restrained as investors fretted over the outlook for US policy stimulus but a rebound in selective blue-chip heavyweight and plantation stocks helped reverse earlier losses. The Index gained 6.48 points to close at 1,840.35, off a low of 1,831.10 and high of 1,843.48, as gainers edged losers 368 to 362 on a trade volume totalling 1.18 billion shares worth RM1.68 billion . Trading range for the local blue-chip benchmark index expanded to 20 points last week, compared with the 28.44 points range in the previous week. For the week, the FBM-Emas Index added 70.29 points, or 0.56 per cent, to 12,697.22, while the FBM-Small Cap Index rose 179.75 points, or 1.16 per cent, to 15,730.24. The daily slow stochastic indicator for the FBM KLCI has hooked down again after signalling a sell early last week but the weekly indicator's trigger line is poised to issue a buy signal on further strength. Meanwhile, the 14-day Relative Strength Index (RSI) indicator climbed to a more bullish reading of 68.05, while the 14-week RSI also recovered to a better reading of 63.13. On trend indicators, the daily Moving Average Convergence Divergence's (MACD) trigger line expanded higher after issuing a buy signal the previous week, but the weekly MACD indicator's signal line continues to level off. The 14-day Directional Movement Index (DMI) trend indicator's +DI and -DI lines continues to expand positively with the ADX line inclining towards 25, suggesting an emerging uptrend. Conclusion Apart from the overbought daily stochastics indicator for the FBM KLCI which issued a sell signal late last week, all other indicators suggest continuation of uptrend to record highs, backed by sustained buying support on blue chips. Nonetheless, uncertainty over Fed's stimulus tapering starting this week could see investors sidelined pending confirmation. However, if dovish comments from officials emerge, emerging markets may extend rally. Immediate resistance for the index stays at 1,860, coming from the 123.6 per cent Fibonacci Projection (FP) of the rally from 1,660 low of August to the October high of 1,822. The subsequent hurdle would be 1,884, the 138.2 per cent of FP. However, an eventual overbought correction should see a test of uptrend supports at the 10-day moving average now at 1,829, followed by the 30-day moving average at 1,809, and next 1,803, which is the current 50-day moving average. The 100-day moving average at 1,783 will provide a stronger support buffer. Chart-wise, Airasia , Maybank , Genting Malaysia and Genting Bhd should attract more buying interest on weakness after falling to more attractive support levels. Meanwhile, continue to buy on dip construction related stocks such as Gamuda , Benalec and Eversendai given their long-term upside potential. The subject expressed above is based purely on technical analysis and opinions of the writer. It is not a solicitation to buy or sell.
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