KLCI week ahead KLCI to stage an oversold bounce

by **Cals** Mon 13 Jan 2014, 00:54

KLCI week ahead KLCI to stage an oversold bounce

Business & Markets 2014

Written by Surin Murugiah of theedgemalaysia.com

Saturday, 11 January 2014 09:14

KUALA LUMPUR (Jan 11): The FBM KLCI is expected to stage an oversold correcting one-week-oversold-situation, and track a slow U-turn of Asian regional indices.
However, overall sentiment may still remain jittery given as Wall Street will get a better picture of reality next week as the pace of companies reporting earnings picks up, which may have a bearing on investor sentiment at global markets.
A number of big banks are due to report their quarterly and full-year results next week, including JPMorgan Chase & Co and Wells Fargo & Co on Tuesday, Bank of America Corp on Wednesday, Goldman Sachs Group Inc and Citigroup Inc on Thursday, and Morgan Stanley on Friday, according to Reuters.
Their results will help determine whether earnings forecasts for 2014 need to come down and whether stock values have become overblown, it said.
Affin Investment Bank Bhd vice president and head of retail research Dr Nazri Khan said that after declining to five week low, he expects the FBM KLCI to stage an oversold bounce (with 1,850 level as the immediate target) correcting one-week-oversold-situation.
“We attribute the last eight days weakness (since 31st Dec) due to (1) New Year portfolio funds rebalancing (2) global caution as markets speculate on the possibility of the Federal Reserve decreasing its quantitative easing programme in January as well due to (3) the weakening of emerging market currencies (ringgit at four months low of 3.2750) after a choppy funds outflow session last week.
“Regardless of the sentiment, we believe the medium term investment case remains compelling now given the global oversold market situation as well as the series of better-than-expected data released in the USA & Europe (positive Trade Balance, Factory Orders, Retail Sales, Industrial Production),” he said.
Nazri said alternatively, economic fundamentals in the USA and Europe looked more resilient than previous years.
He said since the financial crisis, the USA and Germany were ahead in moving to normalisation with significantly stronger economic data, reduced budget deficit, growing signs of business confidence and rising market momentum.
Nazri added that the bounce spotted in European major indices also indicated bigger relief as European market digested the Bank of England decision to maintain its ultra-loose policy and Mario Draghi, president of the European Central Bank comments to maintain policy accommodation.
“Further, there is a perceived "Yellen Put" for the stock market, a belief that the new Fed Chairman will do whatever is necessary to keep the stock market and economy from going down in her first few months of assuming leadership (acting as if she is indeed selling a stock market put, short cash and long stock).
“This perceived 'aggressive-fed-puts-options-writing-approach’ in capping asset weakness and maintaining economic momentum while mitigating inflation and unemployment should be short term supportive for the stock market,” he said.
Nazri said that on the technical front, it was worth noting that this week was the first time the local stock market lost ground to start of the New Year since 2003 (with first week 2014 loss standing at 39 points or 2.1%, worst in eleven years).
He said despite the year-start global cautious tone and volatility, the FBM KLCI showed staying power keeping their uptrend intact above the crucial psychological 1,800 support level.
“The KLCI slid from the all-time high of 1882, with negative weekly breadth as losers edged gainers 4 to 3 on active trade totalling 1.8 billion shares worth RM1.9 billion.
“Despite the holiday shortened session, we expect the benchmark index to rebound with lower liners (FBMSmallCap specifically in the oil & gas sector) to charge bigger funds inflow,” he said.
Nazri said the immediate support for the index remains at the 50-day moving average at 1,820 and 1,800 psychological levels while immediate hurdles stood at 1880, 1860 and 1850 which were the key Fibonacci-based resistance levels.
“We see last week’s correction as a bullish "return moves" after the FBM KLCI made a strong breakout from a seven month head-and-shoulder consolidation pattern indicating bigger upside ahead over the medium term.
“Any bounce above 1,830 level may turn the near term trend in favour of the bull camp, which opens up the prospect for a bigger push toward 1,850 levels,” he said.
Nazri said that as long as the FBM KCLI stays above the six-year-uptrendline (using the low of 2009, 2011 and 2013) near 1,750 level, it could obviously expect the secular bull market to continue.
He said traders should therefore take advantage of the current oversold situation to swing new positions.
“As for strategy, oil gas sector looks the most promising with more upswing in the offing.
“Traders should accumulate oil gas stocks ie. among others UMW Oil Gas, Dayang, Uzma, Yinson, Coastal and Perdana Petroleum while aggressive traders might consider purchasing KLCI futures and global index call options to position for the imminent oversold rebound,” he said.