Although the year 2013 was fraught with concerns over the cutbacks in US stimulus program, major global stock markets ended the year with stellar gains on improving economic outlook improved and hints from the US Federal Reserve that interest rates may remain low even as the unemployment rate drops below 6.5%. The Dow Jones Industrial Average ended its best year since 1995 with a 26.5% gain for 2013 – also ending at a fresh all-time high in the process. Over in Europe, the Stoxx 50 also notched an impressive 17.9% gain, with Ireland's index (+33.8%) among the strongest performers for 2013. However, it was Japan's Nikkei 225, which stole the limelight with a 56.7% surge - owing to a massive stimulus program aimed at dragging the country out of two decades of stagnation. This is a far cry from the South East Asian markets, which witnessed Singapore's STI ending unchanged from a year earlier, Indonesia's JCI ending 6.7% lower, and Thailand's SET index finishing 6.7% lower for the year.

FBMKLCI’s Performance. As for the domestic market, the benchmark FBM KLCI was up by 10.5% (or +178 points). Much of the gains were attributed to the year-end rally, in which the 30-stock index added 3.0% (+54 points) in the December month itself. Notably, this was after the FBM KLCI had finally broken above the 1,826 key resistance level/post election – which until then had proven formidable. In contrast, sentiment towards the small-cap stocks was not as upbeat, with the FBM Small Cap index ending flat from the month earlier (+0.004%). This was due to a run-up towards the tail-end of the month after having spent most part of the month hovering within the negative territory.

On Our Technical Watch Monthly Review. In line with the strategies highlighted in our last Monthly Technical Review (dated 2nd Dec 2013), we adopted a "risk-on" approach once a buy signal was generated when the FBM KLCI convincingly broke above the 1,826 resistance level. During the month, we added 6 additional positions to our technical tracker (technical BUY calls), most of which were based on our favoured bullish "Pennant" and "Flag" chart patterns (ASIAFLE, YOCB, ULICORP and WILLOW). We also recommended a technical buy on HIAPTEK and LBALUM, after they confirmed potentially bullish "Falling Wedge" pattern and the "Ascending Triangle" formations, respectively.

Average gain of 21.7% for December! Meanwhile, the December rally had also presented us with the opportunity to "Take Profit" on a number of stocks which we had added to the tracker list in the previous months. Among these were TENAGA (+14.5%) and HIBISCS (+25.8%) and PTARAS (+24.0%). These 3 realised positions gave an average gain of 21.7%, or a sterling outperformance of 18.73 ppt over the FBM KLCI's 3.0% gain for the month. At the same time, our current unrealised positions totalled 7 counters, namely PIE (+10.7%) which we added in November, in addition to the 6 new additions mentioned earlier – YOCB (+4.4%), LBALUM (+3.0%), ULICORP (0.0%), ASIAFLE (-1.4%), WILLOW (-1.5%) and HIAPTEK (-3.4%).

So much for the January effect. Over the past 5 years, the January months had been generally weak for the FBMKLCI (MoM losses were recorded for 4 years out of 5 from 2009-2013). Now with the FBMKLCI's technical picture also showing signs of a near-term pullback in the days ahead, we would likely be avoiding larger cap stocks for now. Instead, we would be closely monitoring the price action for the FBM Small Cap Index as it now appears poised to retest its multi-month resistance. An anticipated breakout would offer a strong technical buy signal, which would make us small cap buyers once again.

Source: Kenanga