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Wednesday, December 17, 2008

Construction & Plantation Indices Prop KLCI

Construction & Plantation Indices Prop KLCI By Zhuge Liang

Strength in Construction and Plantation Stocks. If there is any strength in the KLCI at all, it would come from the construction and plantation sector. Construction stocks like Gamuda and YTL have been trending upwards since October. The rally of construction stocks could be due to the upcoming UMNO elections next year as traders buy up politically linked counters. Some traders are also betting on the construction sector because of the historical inclination of the government to spend on construction projects to spur the economy during this phase of global economic malaise.

The plantation sector on the other hand is rallying because of the short term recovery of Crude Palm Oil (CPO) prices from a low of RM1,331 in 31st October to the current level of 1,576.

However, it must be noted that though these two sectors are trading promisingly above their short term line, a few negative black candles with long upper tails appeared in both charts,
signaling uncertainty and a possible correction or reversal from here on. After moving upwards for more than a month, these two sectors now face uncertainty ahead.

Strategy : Track construction and plantation stocks
Due to the uncertainty which clouds the two current strongest sectors in the KLCI, the bearish status quo remains for the KLCI
. It might also be prudent to track construction and plantation stocks at this point. You’ll never know when a ray of hope shines through – if construction and plantation stocks like YTL, Gamuda and IOI Corporation can manage to find strength in their reserves for a breakout, it might bring renewed strength in the KLCI.

A few key bluechips stocks are highlighted for your perusal.. The movements of these stocks will be crucial to the near term direction of the KLCI.

Commerz : Still down-trending
Bumiputra Commerce Holdings tried to breakout above its short term MAV line recently but failed. The failure of one of KLCI’s finance leaders to stage even a short term recovery does not bode well for the KLCI and finance stocks.
YTL : 2 month rally. Uncertainty ahead
YTL Corporation has been staging a rally from its September bottom for the last two months. This is due to its subsidiary YTL Power’s S$3.6B strategic
acquisition of the PowerSeraya power asset in Singapore. The rally of YTL could also be attributed to traders being attracted to the construction sector due to possible moves by the government to stimulate the local economy during these weak economic times. However, YTL is currently in the midst of a correction. If the correction continues further, it could already signal the end of YTL’s rally

IOICorp : Holding
IOI Corporation has recovered nicely from its bottom of 2.19 in October to the current level of 3.20. It is now attempting to inch forward day-by-day. The near term outlook of IOI will depend largely on the price movements of CPO.

Gamuda : Strong
Gamuda is one of the strongest stock in the KLCI. It’s currently trading along a nice short term uptrend and is also trading above its short term MAV line. Its strength is derived from investor and trader optimism regarding the construction sector. However, a
Doji candlestick pattern recent appearance which depicts uncertainty at this point. After a two month rally, Gamuda might take a breather for the next few days.

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