IN last week’s article, I wrote about how the market fared this year, and that the bullish trend may continue towards the end of the year for window dressing. This week, I am going to give my opinion on how the market is going to start in the new year as today marks the end of 2014. In the past one week, the market continued to see window-dressing by institutional players. The FBM KLCI rose 1% in a week to 1,766.83 points, despite crude oil prices still falling and the Malaysian ringgit weakening.

The trading volume on Bursa Malaysia fell as the holiday season came to an end. The average daily trading volume in the past one week was only 1.4 billion shares compared with 1.8 billion shares a week ago. The average daily trading value in the past one week fell to RM1.3 billion compared with RM1.9 billion in the previous week.

Both local and foreign institutions were net buyers last week. Net buying from local and foreign institutions was RM46.4 million and RM26.1 million. On Monday, however, foreign institution net selling alone was RM83.8 million and this is possibly due to a weaker ringgit which is still near its four-year low against the US dollar. For the KLCI, gainers outpaced decliners 2 to 1. Gainers were led by IHH Healthcare Bhd (+4.3% from last week), Kuala Lumpur Kepong Bhd (+3.9%) and UMW Holdings Bhd (+2.8%), while decliners were led by Felda Global Ventures Holdings Bhd (-3.6%), British American Tobacco (M) Bhd (-2.5%) and Hong Leong Bank Bhd (-1.4%).

Markets in Asia, excluding Japan, also continued their bullish momentum last week. China’s Shanghai Stock Exchange Composite rose 4.4% in a week to 3,167.39 points, near its four-year high. Japan’s Nikkei 225 index, however, pulled back from its near seven-year high and declined 1% in a week to 17,450.77 points. Hong Kong’s Hang Seng Index increased 0.7% in a week to 23,501.10 points. Singapore’s Straits Times Index rose 1% in a week to 3,366.11 points, the highest in five months.

US markets continued to climb to historical highs in the past one week on the strong dollar and boosted European markets’ confidence. On Monday, the US Dow Jones Industrial Average rose 0.4% in a week to 18,038.23 points. London’s FTSE100 Index rose 0.8% in a week to 6,629.73, and Germany’s DAX Index increased 0.6% to 9,927.13 points. The US dollar index futures rose to its nine-year high at 90.49 points from 89.95 points a week ago. The ringgit remained firm at 3.50 per dollar.

Gold price was directionless in the past one week and ended up marginally higher. Comex gold rose 0.5% in a week to US$1,182.90 (RM4,140.15) an ounce. Crude oil declined 3% in a week to US$53.76 per barrel, the lowest level in five-and-a-half years.

The severe wet weather, flooding in the past one month and weaker ringgit boosted crude palm oil (CPO) prices. CPO futures on Bursa Malaysia rose 3.4% in a week to RM2,283 per tonne yesterday.

The KLCI is currently at the short-term, 30-day moving average but still way below the long-term, 200-day moving average at 1,840 points. The index is still below the Ichimoku Cloud indicator and this indicates that the trend is still bearish. The cloud is beginning to expand moving forward, and this could mean stronger resistance. However, momentum indicators like the RSI and MACD are indicating that the bullish momentum is strengthening.

The window-dressing activity only benefited several blue-chip counters but the general market sentiment is still bearish. This may distort the technical indicators, which led to the belief that the market is soundly bullish. Furthermore, the index is just slightly above the expected resistance level of between 1,760 and 1,765 points, and this may cause the market to pull back. We already saw this happening yesterday.

Today is the last day of 2014, and the index may hold to end the year less bearish. The index has fallen 5.1% year-to-date, despite making a record high in July this year. From my observation in the past years, the first month of the new year has always been a correction month. Now that the index is at the resistance level, we may see a pull back in the index in the beginning of the year. If the index can stay above 1,709 points, which is the 61.8% Fibonacci retracement of the current rebound, we can expect the bullish trend to continue. If it doesn’t, then we may expect further decline, with 1,760 points acting as the support level.

Sectors to watch out for early next year (maybe after the correction period that I mentioned) are companies that use rubber and fuel as raw materials, as declining oil prices could pin down rubber prices. The transport sector may benefit from this as well. Plantation companies may benefit from bullish CPO prices in the next one quarter.

Benny Lee is chief market strategist for Jupiter Securities Sdn Bhd. Jupiter Securities is a participating broker in Bursa Malaysia. He can be contacted at [email protected]. The views expressed in the article are the opinions of the writer and should not be construed as investment advice. Please exercise your own judgement or seek professional advice for your investment decisions.

This article first appeared in The Edge Financial Daily, on December 31, 2014.