Morning Dew - 3 February 2014

January Effect

JCI ended January with a 3.38% gains. Anyone believes in “January Effect” may start accumulating stocks soon to capitalize on the theory. The question is: will it work? Two years ago, the JCI ended January with a positive finish, but last year the theory got shot down by the Federal Reserve.

While the index was up by the fifth month in a row, the FOMC’s announcement that tapering will start had shot down the January Effect theory into pieces. FOMC tapering will eventually boost up the attractiveness of dollar-based assets, hence the news trigger flights to quality.

This year, Fed’s tapering has started, and the impact of domestic policies such as higher fuel prices as well as mineral ore export ban have been factored in. The risk on holding your faith on January effect will be if the Fed speeds up its tapering process. This however, is pretty much unlikely at the moment.

Payrolls Back In Focus

US nonfarm payrolls are seen adding 180k jobs in January, more than 87k jobs added in prior period. The unemployment rate for the same period is expected to stay at 6.7%.

From the private sector, hiring is seen rising to 195k in January while prior period saw it at 238k.

US trade deficit is expected to widen to $35.8b from $34.3b in December.

US ISM for manufacturing sector is seen down from 57 to 56.4 in January, while the service sector gauge is seen up from 53 to 53.9.

Technically Speaking...

JCI ended the holiday-shortened week flat. The index struggled to hold its recent gains from the rebound off 4,286 low but still ended the week 0.4% lower.

Recent low at 4,286 will be the nearest support line while the next big support comes at 4,161, followed by 4,109 and 3,837.

While fairly limited, upside potential is seen as the index will struggle to break the resistance area around 4,480-4,510.

MACD has fallen sharply and currently flirting with the zero line while RSI stays high near the overbought area.

Added RALS and SMRA to the reco pool.

Week Ahead

Emerging market remains the top pressure point for JCI while other issues at the moment remains neutral. Domestic economic data do not seem to warrant another rate rise from Bank Indonesia at the moment. From overseas, key data will be the US nonfarm payrolls as well as PMI/ISM data from Europe and U.S.

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