Hidden inside every chart is a story. A story about where the price has been and where it might go in the future. Some stories are obvious. Others are a little more difficult to figure out.
Indices Updated : 06:59:05
Thursday, November 29, 2007
Sime Darby May Push The Index
KLCI ends +0.6% at 1374.32 in modest volume, recovering from intraday low of 1366.21 in last hour of trade with local funds propping up a range of index-linked issues and heavyweights. Market breadth ended positive with advancers leading decliners 499 to 269. Benchmark expected to open higher tomorrow possibly gap-up between 10 to 14 points on relisting of Sime Darby and trade in 1380-1390 range. Sime Darby will be requoted at MYR8.90 tomorrow, may rise 18-24% to between MYR10.50 to MYR11. Newsflow from both the external and domestic fronts was positive on hopes of another rate cut in the U.S. and better-than-expected third quarter GDP growth (in Malaysia). Buying interest from local funds helped mitigate profit-taking, priming the market for Sime Darby's relisting tomorrow.
KLCI ends +0.1% at 1366.58 in moderate volume, off intraday high of 1373.09 as profit-taking into strength weighs on market. Market breadth turned negative by midday; at close, decliners led gainers 556 to 279. KLCI expected to be in 1350-1370 range; expects investors to take cue from Wall Street's performance tonight to determine direction. The rebound in U.S stocks overnight and firmer regional markets helped to lift the market but profit-taking by retail players and funds narrowed gains. This pattern may persist tomorrow but late bargain hunting may buffer falls.
KLCI ends +0.1% at 1364.99 in thin volume, rising in last hour of trade as local government-linked funds accumulate property, construction, finance and select heavyweights. Market breadth remained negative; decliners outpaced gainers 526 to 252 at close. Profit-taking into strength likely to keep benchmark in 1355-1370 range. "All eyes will be on Wall Street tonight. In the immediate term, the benchmark is likely to trade with a negative bias as investors continue to grapple with the impact of the credit crunch in the U.S. and its effects on the economy.
Tursina OSK said: Synergy Drive en-route to become the largest key heavyweight in the KL Composite Index is definitely a must-have in every institutions portfolio. The company is set to grow its plantation earnings, improve its position within the property industry and tap into the growing needs for fabrication in the O&G industry. Synergy Drive will also have an active participation in the Bakun cable project. We are initiating coverage on Synergy Drive with a BUY recommendation with a 12-month target price of RM13.65 per share, based on sum-of-parts methodology.
KLCI ends +0.8% at 1364.80 in moderate volume, triggered by Wall Street's gains Friday, firmer regional markets and slew of corporate results, says dealer. Market breadth ended positive with gainers leading decliners 457 to 327 as sustained buying interest in heavyweights by local funds helped mitigate profit-taking by retail investors, dealer adds. Tips KLCI to trade in 1360-1380 range tomorrow. After last week's sell down, local funds took the opportunity to bargain hunt shares of government-led companies, select construction and banking stocks. Record high crude palm oil prices also helped lift plantation stocks.
KLCI ends +0.3% at 1389.11, off 1380.43 intraday low in moderate trade of 1.1 billion shares, as profit-taking alternated with bargain-hunting throughout the day, dealers say; tip index to trade within 1380-1400 Wednesday. The local market fluctuated between positive and negative territory throughout the day, tracking the Hong Kong shares pretty closely. Also notes local market breadth positive with gainers overwhelming losers 606 to 227; this suggests the (local) market may continue its uptrend tomorrow.
KLCI will probably trade lower Tuesday with 1370-1390 range tipped after closing off 0.9% at 1384.73 in active trade, dragged down by weak Hong Kong stocks. The 5% decline in Hong Kong shares is likely to have spillover effect on European and U.S. stock markets and the impact is expected to continue to be felt here on Tuesday. The benchmark pegs immediate support at 1355 to 1370, which late October lows; notes selling was heavier in late trade as foreign funds dumped shares in anticipation of further decline tomorrow.
KLCI ends down 0.8% at 1397.48 in moderate volume but off intraday low of 1385.85 as intermittent bargain-hunting in blue chips helped narrow early losses, say dealers. Market remained negative throughout the day; decliners outpaced gainers 599 to 238. The benchmark may trade within 1383-1416 range next week with profit-taking into strength capping gains. Declines on Wall Street overnight and the softer regional markets weighed on investor sentiment but some investors took this opportunity to value hunt. The market may trade within a narrow range next week after gap down from 1409 to 1389.
Banking has always been a business in which the craziest, least-careful players begin to set the rules for everyone toward the end of a credit cycle. Once the late-cycle, easy-money experiments in financial "sinnovation" get rolling, the main options are to play along or opt out of the game, before it ends with loss and regret.
And so, with a fresh round of reports of opaque financial dealings, here we are again, where we've been before.
Until Thursday's first-of-the-month market rout that clipped 2.6% off the Dow and Friday's uneasy breakeven day amid a purge of financial stocks, the market seemed to have been building in expectations that this credit-market seizure would follow the 1998 script.
In that instance, there were also crowded trades in esoteric instruments, mutually destructive relationships among banks and hedge funds and a sudden yet timeless lesson in the hazards of excessive leverage. Then the Federal Reserve cut rates quickly, and, in retrospect, that cheap money provided the fuel for the climactic inflation of the tech bubble the next year.
A further comparison of 2007 and 1998 in terms of stock-market rhythms, economic context and policy-maker response is instructive.
The first half of 1998 saw the stock market barrel higher, scoring a 20% year-to-date gain on July 17 before faltering. Stocks then sank 19% to log a slim loss for the year by late August. About half the losses were recouped; then another scare brought the market back to the low.
Stocks didn't recover for good until after the Fed eased. Short-term rates were dropped from 5.5% to 4.75% in three steps between late September and mid-October. The market soared from mid-October to year end, finishing the year up 27%.
So far this year, the pattern has been roughly similar, with the magnitude of the moves smaller by about half. Stocks ran to a peak July 19, up 10% for the year, then succumbed to the credit turmoil, falling to a slim loss for the year in mid-August. The Fed has thus far cut rates from 5.25% to 4.5% in two steps.
One difference: This year, the indexes recovered more quickly to new highs without any help from the financial sector and, we now see, before investors had taken a full reckoning of the financial wreckage. The present mess, too, hits closer to home for many individuals, both literally and figuratively, given the key role mortgage debt has played.
In '98, we now know, while a vulnerable financial system needed an adrenaline shot of cheap money and a government-facilitated bailout, the real economy didn't, as it was growing 5%-plus in the quarter the troubles hit.
This time, Wall Street is begging for Fed help and the government might ultimately midwife another quasi-bailout, while the growth in the second quarter topped 5% and more recent GDP numbers have held up reasonably well. Estimates for the present quarter, though, are falling below 2%.
All these parallels simply provide context, not a script. For stocks, the '98 crisis ushered in a narrowly led, growth-centric, more-volatile climb in the indexes once the financial rupture was patched -- a move that proved to be the overshoot phase of that decade's bull market.
There's certainly a chance, though, that the vertical moves in oil and gold since the Fed cut the discount rate in mid-August -- and the directly related drop in the U.S. dollar -- have been hinting that another liquidity-propelled asset lift could follow this crisis.
Two weeks ago this column suggested it wasn't the moment to buy ravaged financial stocks, but was time to begin hunting for signs of investor capitulation in the group. That vigil continues. The news can always get worse, especially when dealing with financial dark matter that cast book values into question. But the selling Friday held hints of panic.
The S&P Financial Sector SPDR (ticker: XLF) ended well off its midday low and traded 160 million shares, triple the average and the most since the Aug. 16 market low. Merrill Lynch (MER) traded five times average volume and even traded up a bit after hours. It would be helpful if Street analysts turned more aggressively negative on the group before one could sound an all-clear.
One non-obvious beneficiary of the flight from financials has been the utilities sector. After six months of underperformance, the utilities have outpaced the market in the past month and appear set to challenge their old highs. One theory is that yield-oriented investors are selling 5%-yielding bank stocks and taking shelter here. The stickiness of Treasury yields at lower levels also lends support. Some utilities, of course, act as natural-gas plays. They're not cheap in historical terms, but the fact that utilities are systematically underowned by institutions is a plus.
KLCI ends down 0.3% at 1409.16 on profit-taking after benchmark rose to fresh record high of 1423.81 in early trade. Market breadth ended negative with decliners outpacing gainers 534 to 322 but select plantation stocks bucked trend on continued bullish outlook toward CPO prices. KLCI tipped in 1400-1416 range tomorrow but with downside bias as pre-weekend profit taking likely to narrow gains. Investors were cheered by the Fed's decision to cut interest rates by 25 basis points but opted to lock-in profits as the benchmark headed into uncharted territory yet again. This short-term trading stance is likely to persist tomorrow.
I'm a hardcore Technical Analysis Trader in the Malaysian stock-broking industry. This is a personal weblog, reflecting my personal views and not the views of anyone or any organization. THIS BLOG ALSO DEDICATED TO MY SUBSCRIBERS WHO HAVE ENCOURAGED ME AND TO THE THOUGHTFUL TRADERS WHO DESIRE TO FOLLOW PRACTICAL RULES FOR TRADING INSTEAD OF GUESSWORK AND GAMBLING METHODS.
