Will the music running up to the year-end party stop anytime soon? Last week, the bulls continued to charge ahead, pushing the key FBMKLCI to hit a high of 1,690 before paring down some gains to finish at 1,685 on Friday. This represents a weekly jump of 62.7 points or 3.9%. In the US, Wall Street was in a consolidation phase as the DJIA settled at 30,046 for a weekly decline of 171.9 points or 0.6%.

During the week, the mid and big caps on the Malaysian stock exchange remained in the limelight, which lifted daily average trading volume to 11.6b shares (from 10.8b shares the week before) valued at RM6.3b (similar with the previous week). The week saw net buying flows from domestic retail investors (of RM717m) while foreigners and local institutions were net sellers (amounting to RM574m and RM143m, respectively).

As the end of the year nears, the ground may turn quieter on the news front. In the coming week, of probable interest is only the last US Federal Open Market Committee (FOMC) meeting for the year scheduled on Tuesday and Wednesday.

And less news may be good news for the local bourse, which has thus far lived up to expectation of delivering positive returns in December with month-to-date gains of 121.9 points or 7.8%. This is consistent with its historical trend as the final month of the year has typically been a profitable period presumably due to window dressing activities. With that, the FBMKLCI has now added 223.1 points or 15.3% from its recent trough of 1,461 on 3 November to hover at its highest level since early July last year

Yet, while the benchmark index has cancelled out a possible double-top formation following its recent surge, a market correction from an overbought territory could be on the horizon. This may be the case as suggested by its stochastic indicator, with the %K line crossing below the %D line when both values are above the overbought line. In addition, the appearance of a divergence pattern between the RSI and the FBMKLCI (whereby the RSI is plotting lower highs while the index has continued to chart new highs) also signals downside risks ahead.

Technically speaking, we have revised our resistance thresholds to 1,720 (R1) and 1,755 (R2) to cap the FBMKLCI’s further progress. On the downside, a likely pullback could then press the key market barometer towards our resistance-turned-support levels of 1,675 (S1) and 1,645 (S2), respectively.

Over on Wall Street, after taking a pause, the DJIA may resume its upward trajectory. Our key support and resistance levels for the DJIA are maintained at 29,100 (S1) / 28,000 (S2) and 30,600 (R1) / 31,300 (R2), respectively.

Source: Kenanga Research - 14 Dec 2020