Mar 30, 2010


Poised to Challenge 1,334 High Before Correction
Bursa Malaysia shares staged strong rebound last week on positive news flow with rubber glove makers and technology stocks leading gains, given the bullish demand outlook and optimism ahead of the Invest Malaysia conference when the New Economic Model will be announced by the government.

The blue chip barometer FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) bounced back 18.54 points or 1.4% last week to close at 1,315.14,with CIMB (+56sen), Sime Darby (+24sen), Maybank (+18sen) and TM (+20sen) representing almost four-fifth of the index’s gain. Daily average traded volume and value surged to a two-month high of 1.04bn shares worth RM1.6bn, compared with  the 687.4mn shares and RM1.14bn average the previous week.

Spot month March KLCI futures contract traded on Bursa Malaysia Derivatives Berhad climbed 23 points, or 1.8% week-on-week to 1,321, improving significantly to a 5.9-point premium to the cash index, against the 1.4-point premium the previous Friday.

The domestic stock market ended lower last Monday, dragged down by weaker regional markets after the surprise interest rate hike in India raised concern that central banks in the region will introduce more steps to tackle inflationary pressure.  However, stocks bounced back sharply the next day, with rubber glove makers leading the rise on optimism the passage of a US healthcare bill by President Barack Obama will boost the demand for rubber gloves.

Stocks extended recovery on Wednesday, with technology stocks leading gains in line with regional peers due to signs of a robust rebound in global demand for semiconductors.  Despite a mixed showing on regional markets the following day due to concern over European sovereign debt, local stocks extended gains with lower liners leading gains on increased rotational trading plays while blue chips consolidate.

The market sustained gains for a fourth straight session on Friday, lifted by hopes next week’s Invest Malaysia conference will see the government proposing more liberal measures to promote foreign direct investments in the New Economic Model, encouraging more investors to participate.   

The KLCI rose from intra-week low of 1,292.21 mid-morning session last Monday subsequently recovered for the next four consecutive day’s to close at the week’s high of 1,315.14 on Friday, clocking a wider 22.93-point trading range last week, against 18.49 points the previous week.  The FBM-EMAS Index rose 188.35 points or 2.16% last week to close at 8,911.51, while the FBM-Small Cap Index rallied a whopping 528.43 points, or 4.87% to 11,381.62, triggered by resurgent buying interest in lower liners.

The daily slow stochastics indicator for the KLCI is now in the overbought zone after triggering a buy signal last Tuesday (Chart 1), while the weekly indicator has leveled in the overbought area.  On the 14-day and 14-week Relative Strength Index (RSI) indicators bore higher readings of 62 and 67 respectively, neutralizing last week’s bearish divergence signals.


above: click to enlarge

On the other hand, the daily Moving Average Convergence Divergence
(MACD) trend indicator has re-hooked up and is set to trigger a buy signal, strengthened by a similar hook-up on the weekly MACD indicator  (Chart 2).  On the 14-day Directional Movement Index (DMI) trend indicator, the +DI and –DI lines expanded outwards to signal stronger up-trend ahead, as shown by the rising ADX line.


above: click to enlarge

While momentum indicators reflected overbought condition for the KLCI, trend indicators are reversing their bearish signals, with the daily MACD set to trigger a buy on further strength.  As such, investors can expect further upside early this week ahead of the Invest Malaysia  conference on Tuesday and Wednesday, before profit-taking and selling interest which is likely to increase by the later part of the week given the sell-on-fact traders mentality. 


above: click to enlarge

Note that last week the index managed to hold above 1,292, the 38.2% Fibonacci Retracement (FR) level of the 1,224 trough to  1,334 peak, before bouncing back up for a strong V-shape recovery  (Chart 3).  The index’s strength in sustaining above 1,308, the 23.6%FR level, will improve upside bias toward 1,325 and subsequently the two- ear peak of 1,334 of 11 March this week.  A breakout above this peak, specially backed by strong follow-through buying, will fuel upside toward our immediate upside target of 1,354, representing the 76.4%FR of the bearish trend from 1,525 all-time high to the 801 low.  Immediate support is now upgraded to 1,308, with 1,300 as a stronger base. 

For this week, we expect rubber glove makers Adventa, Latexx and Supermax to extend gains on hopes earnings will expand further with passage of the US healthcare bill boosting demand, while Kinsteel, UEM Land, Dialog, Kencana, SapuraCrest, RCE Capital, 3A resources, Leader Universal and Land & General to appreciate further on keen rotational plays.     

source: TA Securities