Relief rally on the cards for Bursa

Investors should lean towards selling on strength blue chips such as AirAsia, Axiata, CIMB, Genting Bhd and Genting Malaysia, Maybank, Petronas Chemicals and Tenaga, says a head of research.

BURSA Malaysia blue chips extended correction for a seventh straight week, with weak buying momentum and lingering concerns over the timing of the general election discouraging investor commitments. They remained mostly sidelined amid election fatigue and as regional markets ended lower on concern the US Federal Reserve may roll back quantitative easing measures.

For the week, the FBM KLCI slipped 5.85 points, or 0.36 per cent to 1,628.08, with DIGI.com (-25 sen), Public Bank (-28 sen), KLK (-90 sen) and Genting Bhd (-17 sen) contributing to most of the index's fall. Average daily traded volume and value recovered to one billion shares and RM1.4 billion respectively, compared with the 729.3 million shares and RM1.24 billion average the previous week, as more investors returned from the long Chinese New Year holiday break.

Announcement of a stronger-than-expected 4Q12 gross domestic product of 6.4 per cent failed to buoy sentiment as investors remained cautious ahead of possible dissolution rumours last Friday while engrossed with negative news flows from the US and China. The much talked about D-day came and went without a sign. Now the ball is on the opposition's court to see whether they will walk the talk about earlier dissolution of the Selangor state assembly post Chap Goh Mei as proclaimed earlier by the Menteri Besar.

If it materialises, it will force the BN to pursue a similar move and not wait until the eleventh hour before the Parliament's term expires on April 28 as the Election Commission chairman has openly said that there will be no separate elections. If a general election is due within sixty days of Selangor state assembly dissolution, presuming it is dissolved on March 1, an election should be called latest by April 30 for all the states and national level.

While it will be interesting to watch the 'tug-of-war' in the coming days or weeks, investors have to face the brunt of market volatility in the local equity market that could be exciting for traders.

The benchmark index could stage a relief rally this week after going through corrections for weeks. No change in investment strategy. Sell-on-strength and wait to accumulate, post dissolution but before the election day, blue chips and cyclical plays as the incumbents are expected to return to power with a simple majority. If the unexpected happens and the mass opted for a change, there could be an immediate term jolt and massive correction in the index due to uncertainty over a smooth transition and continuity in policy measures.

Nonetheless, if everything goes well, we can expect the portfolio funds, especially foreign, to return within three to six months. Either way, long-term investors should benefit by picking up fundamentally solid companies. The only caveat here is if the transition is not smooth that could push forward the waiting period until stabi-lity returns.

Look to buy construction and property players that grossly underperformed the benchmark index last year while not missing out on the oil and gas sector's capital expenditure upcycle as the deepwater activities, rejuvenation of ageing oil fields and development of marginal fields gain momentum. Banks, being at the forefront of services sector that will benefit from the multitude of domestic activities, have many attractive undervalued stocks that fit the bill for strategic long-term holdings.

Technical outlook

Spot month February KLCI futures contract that traded on the Bursa Malaysia Derivatives Bhd was flat at 1,617 for a slimmer 5.1-point discount to the cash index, compared with the wide 10.3-point discount in the previous week, as fears dissipated after widespread speculation of dissolution of Parliament last Friday was proven unfounded.

Blue chips led by core banking stocks fell on Monday, amid weak buying momentum and persistent concerns over the timing of the general elections which discouraged investor commitments. The KLCI slid seven points to settle at the day's low of 1,620.93, off an opening high of 1,629.91, as losers beat gainers 399 to 209 on slow trade totalling 765.3 million shares worth RM929.8 million. Blue chips extended losses the following day, with Genting Bhd and Genting Malaysia leading falls amid concerns over weaker earnings after Macau casino gaming revenues missed estimates.

The KLCI slipped another 5.86 points to end at 1,615.07, as losers beat gainers 435 to 211 on higher total trade of 884.4 million shares worth RM1.17 billion.

The local stock market stayed weak on Wednesday, with key telcos and gaming stocks leading the index lower amid the uninspiring debut of Tune Insurance which closed one sen higher than its IPO price of RM1.35. The KLCI ended 1.74 points lower at 1,613.13, off a low of 1,606.73, as losers beat gainers 399 to 283 on more active trade totalling 1.37 billion shares worth RM1.71 billion. Blue chips extended losses early Thursday, dragged down by regional falls amid concern the US Federal Reserve may limit stimulus measures and China calls for further property curbs, prior to rebound in afternoon trade.

The KLCI ended 0.72 point up at the day's high of 1,614.05, off an early low of 1,599.94, as losers beat gainers 443 to 236 on slower trade totalling 1.17 billion shares worth RM1.69 billion.

Stocks stayed range bound on cautious trade ahead of the weekend, as blue chips staged late rebound but investors remain mostly sidelined amid election fatigue, and as regional markets ended mixed on concern the US may roll back quantitative easing measures.

The index rose 8.03 points to close on Friday at the day's high of 1,622.08, off an early low of 1,611.70, as gainers led losers 388 to 259 on lacklustre trade totalling 831.6 million shares worth RM1.49 billion.

Trading range for the local benchmark index last week expanded to 29.97 points, compared to the 11.55 points range in the previous week, after the blue-chip benchmark managed to bounce back from a sell-off to the 1,600-level on bargain hunting support. For the week, the FBM-EMAS Index lost 46.52 points, or 0.42 per cent to 11,022.51, while the FBM-Small Cap Index reversed 145.33 points, or 1.26 per cent to 11,393.58.

A buy signal was triggered on the daily slow stochastic indicator for the FBM KLCI following last Friday's strong close, suggesting good rebound potential this week, but the weekly indicator retained its bearish decline.

The 14-day Relative Strength Index (RSI) momentum indicator has also hooked up with an improved reading of 40.92, but the 14-week RSI flashed a weaker reading of 45.29.

As for trend indicators, the daily Moving Average Convergence Divergence (MACD) signal line has hooked up and is poised to trigger a buy signal on further strength, but the weekly MACD indicator maintained its hook down to suggest a weaker medium-term trend. The bearish trend is supported by the 14-day Directional Movement Index (DMI) trend indicator.

Conclusion

There is a high possibility for a relief rebound this week, as the widely speculated dissolution of Parliament last Friday to pave way for the 13th general elections was proven to be unfounded. Moreover, supported by the buy signal on the daily slow stochastics for the FBM KLCI and hook-up on daily MACD which would spark a buy signal on further strength, a technical rebound should likely sustain this week. Nonetheless, investors should watch for bullish confirmation from a significant increase in buying momentum for sustainable gains ahead.

As for the index, immediate support is fixed at 1,613, the 50%FR of the 1,526 low of May last year to the 1,699 record high of January this year, with last week's low of 1,599 and 1,592, the 61.8%FR matching the late November 2012 trough, as more solid support platforms. Meanwhile, immediate resistance stays at 1,633, the 38.2%FR, followed by the 50 and 100-day moving averages at 1,651 and 1,646 acting as tougher upside hurdles.

Chartwise, investors should lean towards selling on strength blue chips such as AirAsia, Axiata, CIMB, Genting Bhd and Genting Malaysia, Maybank, Petronas Chemicals and Tenaga as profit-taking interest should increase on further gains. Consequently, switch to bargain lower-liner property-related stocks such as Glomac, Mah Sing, MRCB and UEM Land which remain attractive at current levels for medium-term upside. DRB-HICOM, Muhibbah Engineering, Perisai Petroleum and Perdana Petroleum are also good candidates to outperform in the medium term.

The subject expressed above is based purely on technical analyses and opinions of the writer. It is not a solicitation to buy or sell.