For the month of October, major markets in the U.S and Europe displayed a strong MoM performance, boosted by the relief over the end of the U.S. political impasse and investor expectations that the Fed will keep its stimulus program intact for several more months. As a result, the Dow Jones Industrial Average (DJIA) finished the month on a bullish tone, having gained 416-points (+2.8%) for the month while the European Stoxx 50 index rose 175-points (+6.0%). Meanwhile, sentiment in key Asia market was mixed, with the key indices Hong Kong’s Hang Seng Index, Singapore Straits Times Index, Japan’s NIKKEI 225 index, and China’s Shenzhen SE Composite registering a MoM performance of +1.5%, +1.4% and -0.9%, and -1.5% respectively. Meanwhile, Malaysia’s FBMKLCI index gained a modest MoM growth of +2.2% (+38.23 points) for October.

FBMKLCI’s October Performance. On the local front, the benchmark FBMKLCI added 37.82 points or 2.4% in the month of October. Despite starting out from a low base, the FBMKLCI slowly garnered momentum, amid positive news in the market, namely: (i) The resolution to the US government shutdown and debt ceiling hurdles; (ii) A firmer political outlook after the UMNO election; and (iii) A brighter fiscal outlook in Malaysia after the Budget 2014 announcement. All the positive headlines supported the FBMKLCI’s rally to an all-time high level of 1,818.93 on the eve of Budget (Nov-24). We believe that the strong rally was mainly contributed by the buying support of local funds, which were positive on the outcome of the Budget 2014. Not too surprisingly, some profit taking was felt post Budget 2014 and the FBMKLCI was unable to overcome the 1,826 resistance (which was set in early May).

On Our Technical Watch Monthly Review. The technical landscape in October had been bullish, as the return of investors’ buying interest set the tone for positive share price movements for the most part of the month. This was in part, attributed by firmer macroeconomic news, and coupled with stabilisation of political viewpoint after the UMNO election. Hence, we adopted more aggressive measurement, with meatier upside targets and wider protective stop-loss levels. The majority of our outright BUY call recommendations were based on short-to-medium trading target horizon with 10.9%-50.5% upside. Out of the 36 technical stock highlights during the month, 5 of them were outright BUY recommendations, while the remaining 31 were NOT RATED.

Tracker Review… The FBM Small Cap stocks has taken cue from the improvement of FBMKLCI index (+2.2% MoM) with 3.5% MoM gain to 15,788.92 after hitting record high @15,834.74 (30-Oct-2013). The 7 stocks still running in our technical portfolio has outperform both FBMKLCI index and FBM Small Cap index with an average gain of 6.69%. This is bearing in mind our strategy which was skewed towards smaller capitalization stocks. Meanwhile, our protective stop-loss practice had shielding us against unfavourable prediction with the only realised position for the month being JETSON (-4.5%). Nevertheless, we still have seven stocks running on our unrealised portfolio, namely PTARAS (+29.9%), CENSOF (+8.3%), BIMB (+4.3%), VITROX (+3.8%), HIBISCS (+2.6%), TENAGA (+0.8%), and FCW (-2.9%).

October Technical Strategy. As the FBMKLCI and FBM Small Cap indices are likely at the peak of the chart, we suspect the broader market may potentially undergo further near term profit taking as the technical indicators remain overbought. Nonetheless, we are more optimistic in the medium term as we believe fourth quarter’s window dressing activities may trigger another round of bullish rally, which could stir up the FBM Small Cap stocks to a new high ahead of the blue-chip stocks. 

Source: Kenanga