Global markets ended November on an upbeat note, with sizable gains on Japan’s Nikkei 225 Index (+9.3% MoM) as the currency slumped to its lowest level in half a year. Meanwhile, China’s Shenzhen Composite Index (+6.7% MoM) also registered impressive gains after the government announced the largest package of economic reforms since the 1990s. Strong economic data also helped lift US equities, and as a result, the Dow Jones Industrial Average clocked in a still impressive gain of +3.5% for the month. Unfortunately, investor sentiment was much less sanguine closer to home. Markets across Southeast Asia took a bruising, with Bangkok (SET -5.0%) paralysed by protests, central Philippines (PCOMP -4.5%) devastated by a typhoon and investors fleeing Indonesia (JCI -5.7%) in anticipation of the US ending its aggressive bond-buying program.

FBMKLCI’s November Performance. On the local front, the benchmark FBMKLCI eked out marginal gains of 5.87 points (+0.3% MoM) to end the month at 1,812.72. The gains were largely due to an eleventh hour run-up on the index in the final two trading days of the month which came despite S&P's downgrade of 4 Malaysian financial institutions (CIMB, AMBANK, RHB Bank and RHB Investment Bank) from stable to negative outlook on the 27^th of November. Note that prior to the two-day rally, the FBM KLCI had been trading within negative territory throughout the month. Even so, the better performance towards the tail end of the month appears to be confined to larger capitalization stocks, with the broader FBM Small Cap index slipping into the red over the same two-day period (and -1.0% MoM).

On Our Technical Watch Monthly Review. As we entered the November corporate earnings season, the local bourse had begun to show toppish signs (see Monthly Technical Review dated 4th November). This led us to adopt a more cautious approach to our recommendations, with anticipations of near term profit taking in the local market. It wasn't until the middle of the month that we saw an opportunity to call a "Technical Buy" on PIE. PIE was the only "Technical Buy" call we made, among the 32 stock highlights we wrote on in November.

6.9ppt outperformance over the FBM KLCI … The market had played out mostly to our expectations for the month. We were able to "Take Profit" on a number of stocks which we added to the tracker list in prior months and among these were VITROX (+23.7%), CENSOF (+14.8%) and BIMB (+3.0%). As for the downside, we realised a loss on FCW (-12.6%) when its protective stop-loss level was triggered. Still, these 4 realised positions provided decent gains of 7.2%, which represents a 6.9ppt outperformance over the benchmark FBM KLCI's 0.3% gain for the month. At the same time, we still have 4 other stocks still in the running within our tracker, namely PTARAS (+26.3%), HIBISCUS (+7.4%), TENAGA (+5.3%) and PIE (+9.7%).

December Technical Strategy. Now with the technical picture showing a gradual shift in momentum from bearish to bullish, we reckon that the FBM KLCI would look to retest the 1822/1826 resistance levels over the next week or two. Nevertheless, our main concern is the lack-lustre trading volume of late, and this will make us a doubtful on whether or not the FBM KLCI would be sustainable beyond these levels. Rather than to buy-in now, we would prefer to view any run-up as an opportunity to sell into strength. A pick-up in buying volume, or a decisive breakout above the 1,826 resistance would be the key signals to look out for before we turn outright bullish on the market.

Source: Kenanga