Overall, global indices saw an improvement in sentiment in April, as an accomodative low interest rates and better-than-expected US corporate earnings kept the markets upbeat. Notably, the Dow Jones Industrial Average closed the month at yet another all-time high level of 16,580.84 (+0.7% MoM). Over in Europe, the FTSE 100 Index and the European Stoxx 50 also reported 2.8% and 1.2% MoM gain, respectively. This is a far cry from the Japan’s Nikkei 225, which plunged by 3.5% MoM following a couple of corporate earnings misses. Closer to home, the return of foreign funds helped to push the South East Asian markets to a higher level, which witnessed Singapore’s STI notching a decent 2.4% gain, Thailand’s SET index ending 2.8% higher, and Indonesia’s JCI finishing 1.5% higher for the month.

FBM KLCI’s April Performance. On the local front, the benchmark FBMKLCI was trapped in a sideways consolidation mode, hovering from 1,840 to 1,869, amid lack of fresh catalyst. Despite the lacklustre trading on index-linked counters, rotational play in the small caps and penny stocks were apparent during the month as retail investors jumped aboard the bandwagon. This trading pattern lasted long enough in April, until the domestic institutional funds stepped in over the last few trading days, in conjunction with the April month-end closing. Continued buying interest in Malaysian blue chips sent the FBMKLCI higher 22.31 points (or +1.2% MoM) this month, to settle at 1,871.52, outperforming the DJIA index by 46 basis points. Interesting to note that, foreigners are slowly returning to the domestic market. On a monthly basis, Apr-14 marks the first month of foreign funds net buying with a cumulative net inflow of RM718m, after six consecutive months of net selling earlier on.

On Our Technical Watch Monthly Review. Despite the better sentiment on small caps and penny stocks, we remained very selective in our technical recommendations. Of the 31 technical stock highlights we made in the month, just 3 of them were outright BUY recommendations (MAICA, MUDA and SAB), 2 of them were SELL recommendations (D-BHD and CHOOBEE), while the remaining 26 stocks were NOT RATED. All our BUY call recommendations are backed by solid fundamentals, and thus we were able to avoid steeper losses amid the higher occurrences of false breakout signals and the relatively higher valuations for the FTSE Bursa Small Cap Index (FBMSC).

Tracker Review. Our recommendations played out mostly to our expectations and the month of April gave us one of our best monthly performances. Our realised tracker registered a decent 19.7% return which outperformed the benchmark FBMKLCI by a wide margin (18.5 percentage points). We were also fortunate enough to book in a 5/5 success rate on the realised positions, i.e. on MMSV (+19.5%), HIAPTEK (+4.7%), LBALUM (+21.6%), WILLOWGLEN (+23.2%) and SAB (+29.3%).

May Technical Strategy. The FBMKLCI index is still in consolidation mode despite trading near its all-time high level. Resistance is expected to be strong at the 1,882 all-time, and we would prefer to use it as an opportunity to sell into strength rather than to hope for a breakout. Over the past few months, our technical recommendations had been focusing on the small caps as we have previously highlighted that the FBM Small Cap Index is poised to retest its multi-month resistance (refer to our Monthly Technical Review report dated 2-Jan 2014). Now with the FBMSC Index’s technical picture showing signs of a near-term pullback in the days ahead, our technical strategy would be more selective and risk averse than the prior months. We are ready to look out for more oversold rebound plays, should the conventional “Sell in May and go away” wisdom intensifies.

Source: Kenanga