Year-end rally pushes KLCI above the trendline

REVIEW: Window-dressing activities aside, the strong performance of equities in the latter half of the week serves to illustrate that the economy remains resilient despite the broadly negative sentiment plaguing the markets.

The rally on Wall Street in the Boxing Day session, which gave the Dow Jones Industrial Average a push of over 1,000 points rested on strong holiday sales figures that showed healthy consumer spending and underlying it, a robust economy.

In a single session, the bulls came charging out of the gate and halted the descent of major US indices; the S&P500 had come within a fraction of a per cent of entering a bear market while the Dow Jones was just 1% away from doing the same. The Nasdaq, however, rebounded only 0.4% the day after Christmas and remained in bear territory.

This helped to prop up Bursa Malaysia and other Asian markets. On the local scene, window dressing had already seen the local equities market firm up over the week.

At the start of the week, the FBM KLCI rose 13.54 points to 1,683.82 despite losses in the US market in the previous session following news of a partial government shutdown and President Donald Trump’s harsh criticism of the Federal Reserve chairman.

Axiata, Tenaga Nasional Bhd (TNB) and Top Glove were the strongest-performing constituents of the KLCI during the thinly traded Christmas eve session with each counter rising about 4%. TNB showed to be a target for investor buying as it had already risen over 5% in the previous session.

Over in the United States, however, the selloff would continue even the US Treasury Secretary Steven Mnuchin called for a meeting with a working group on financial markets to discuss the slide in the stock market.

Unfortunately, the meeting – deemed unnecessary by some observers – spooked investors more than comfort them, leading to a further sharp fall in the US market.

This set the tone for Asia’s post-Christmas open. It seemed an ideal opportunity for profit-taking on Bursa Malaysia given its strong performance on Monday, despite the window-dressing period being expected to continue until the last day of the year.

Investors took money off TNB, which erased about 3% of its value. However, Genting and Genting Malaysia were on the receiving end of more bad news as it was hit with a lawsuit from Wynn Resorts for infringing on its building design.

The FBM KLCI lost 11.22 points to 1,672.6 amid turnover that remained tepid due to the holiday season.

Oil prices during this period had been on a a bearish trajectory with Brent crude hovering just above US$50 a barrel. However, like equities markets, the price of the commodity was set to surge on renewed confidence in the economy.

As Wall Street rallied for its Wednesday session, oil prices climbed sharply with Brent gaining about 8% to US$54.47 a barrel and US crude surging 8.6% to US$46.22 a barrel.

This led to a rebound in Asian markets although by market close, the result was mixed as many observers noted that the feel-good factor of strong year-end sales mean very little for the performance of markets headed into 2019.

Japan led with a 3.9% advance. In SouthEast Asia, Singapore’s Straits Times jumped 1,2%. Shanghai’s Composite Index was down 0.6% while Hong Kong’s Hang Seng slipped 0.7% as China revealed that profits for its industrial sector slumped. The FBM KLCI climbed 18.12 points to 1690.72.

On Friday, markets managed to extend their gains, tracking Wall Street’s positive albeit volatile performance overnight. The FBM KLCI started soft but ended 1.35 points higher at 1,692.07.

Statistics: Week-on-week, the major index was up 21.79 points or 1.3% at 1,692.07. Total turnover for the four-day week stood at 5.7 billion shares amounting to RM4.15bil compared with 9.36 billion shares worth RM8.46bil over the last trading week.

Outlook: As of Dec 28, the penultimate day of the trading calendar, the FBM KLCI registered a loss of 104.74 points or 5.8% since the close of trading for 2017.

There has been some optimism returning to markets in this final stretch of 2018 as tensions over economic growth eased and oil traders are predicting Brent crude will rise above US$70 a barrel as fears of a recession subside.

Looking ahead to 2019, The US-China trade talks on Jan 7 is a positive addition to the start of the year, ahead of the March 2 deadline for higher trade tariffs.

Based on the daily price chart, the index looks set to end the year afloat of the support at 1,680. The index moved above the descending trend line this past week and is angling towards the resistance at 1,709.

On Friday, the index faced some resistance from the 50-day simple moving average and made a tentative crossing, which would suggest further improvement in sentiment.

The momentum indicators have improved with the daily moving average convergence/divergence line indicating a return to a positive trend. However, the slow-stochastic is oversold and attempting to neutralise, suggesting some immediate-term pullback. PRINTED AND DISTRIBUTED BY PRESSREADER