Thursday, December 06, 2007

More than another year-end rally?

Yesterday, our KLCI gained 11.96 points to close at 1427.77. At this level, the KLCI has surpassed its recent high of 1423.81 recorded on November 1st (see Chart 1 below). The year-end rally has started with a bang, from the re-quotation of the restructured Sime Darby on November 30th. As noted in my earlier post (go here), Sime Darby's theoretical value should be about RM8.81, but on re-quotation, it traded to a high of RM12.10 before closing at RM11.00 at the end of that day. This 25%-jump in the value of the top stock on our bourse has caused the KLCI to gap up (from its close at 1374.32 on November 29th to its opening level at 1408.09 on November 30th). This was also followed by strong rally in Tenaga (as noted in this post) as well as a breakout in TM (go here). Maybank may participate in this rally as well (see the next story). The big question now is, Can the rally sustain beyond the year-end?

Chart 1: KLCI's daily chart as at December 5 (courtesy of Quickcharts)

Chart 2: Crude Oil chart as at December 5 (courtesy of SuperCharts by Omega Research)

The continued recovery in the Dow and the correction in the price of Crude Oil (see Chart 2 above) may have provided the catalysts for this rally in the market. Despite the sharp gain among the blue chips, the rally has yet to broaden out. The second- and third-liners are still very quiet. Overall market volume has yet to increase significantly. So, all signs seem to point to a short rally for window dressing. If so, one may be better served by selling into this rally.

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