Bulls eyeing historical peak

Sunday, April 3, 2011

REVIEW: Overnight Dow scaled for a third straight day, advancing 50.03 points to 12,220.59 the previous Friday amid growing confidence in the US economic strength while the Standard & Poor's 500-shares notched its best week in two months following an upbeat outlook from Oracle Corp.

In spite of the bullish ambiance in the US, Bursa Malaysia opened the week on a mixed note, with the bellwether FBM Kuala Lumpur Composite Index (FBM KLCI) easing 1.05 points to 1,514.50 in the wake of profit-taking activity.

The underlying tone was cautious, with tensions in the Middle East and Libya, as well as lingering concerns about nuclear crisis in Japan weighing on the local market. Elsewhere, a lower crude oil prices, combined with a sluggish regional performance kept many investors at bay.

Given the limited support, shares drifted sideways to lower in lacklustre trade, ending down 1.30 points to 1,514.25 on Monday, snapping a six-day winning streak.

The bulls on Wall Street finally paused for a breather, pulling the Dow 22.71 points lower to 12,197.88 owing to an apparent profit-taking selling the following day, as corporate outlook was clouded ahead of earnings season and uncertainty continued to creep from the Middle East and Japan.

Meanwhile, the black commodity sustained the downward spiral, slumping a huge US$1.42 to US$103.98 per barrel amid easing worries about supply, as Libyan rebels doubled efforts to resume oil exports after regaining key territory.

Against the negative backdrop, many investors had expected Bursa to falter on extended correction, but in a surprising move, a steadier Asian equities due to first-quarter “window dressing” buying and the expectations of a better second quarter, saved the FBM KLCI.

Despite this, trading was cautious and mirroring the offshore mood, the local market treaded within a range in the plus side throughout before ending up 5.84 points to 1,520.09 on Tuesday.

Market sentiment, especially in the Asia-Pacific region, turned better, as the resumption of a rally in overnight Wall Street somewhat encouraged investors to concentrate on adding to their winning positions as the quarter winds down, and energy shares climbed, as crude oil prices rebounded on optimism of a quick return of Libya's oil exporting capabilities.

Riding on the overseas strength, blue chips, together with the second and lower liners on the home front sustained the upward thrust, driving the FBM KLCI up 11.54 points to 1,531.63 in mid-week.

It added another 13.50 points to 1,545.13 on Thursday and an extra 10.25 points to 1,555.38 yesterday, lifted mainly by the heavyweights amid follow-through foreign nibbling, spurred by an encouraging US economic data.

Statistics: On a weekly basis, the major index chalked up 39.83 points, or 2.6% to 1,555.38 yesterday, against 1,515.55 at the close on March 25. Weekly turnover rose to 8.846 billion units valued at RM10.996bil, versus 6.126 billion shares worth RM8.214bil done a week ago.

Technical indicators: The oscillator per cent K and the oscillator per cent D of the daily slow-stochastic momentum index retained their position at the bullish extended-mode zones.

Elsewhere, the 14-day relative strength index picked up steam, firming steadily from a reading of 64 to settle at the 84 points yesterday. In addition, the daily moving average convergence/divergence (MACD) histogram continued to expand positively against the daily signal line to retain the bullish note. It triggered a buy on March 21.

Weekly indicators were seen improving, with the weekly slow-stochastic momentum index keeping the buy and the downward momentum of the weekly MACD halting.

Outlook: Bursa crept higher to the best level in almost 2-month amid continuous bargain hunting interest, giving the FBM KLCI gains for the third consecutive week.

The improvement was largely attributed to the recent macro economic data in the US suggesting the global economy was still on the recovery track, supported further by the upcoming Sarawak state election and the backdrop of the two major geopolitical developments in Japan and Middle East not changing much on a day-to-day basis.

In spite of the recent gains, Bursa remains fragile and sensitive to breaking news flow, especially from Japan and the Middle East.

Based on the daily bar chart, Bursa is expected to strengthen but on a gradual pace, with the bulls eying a re-test of the historical peak of 1,576.95 following the recent bullish breakout, of which a successful penetration would send them to unknown territory.

Apparently, a couple of short-term indicators are sending out overbought signal, implying the FBM KLCI may consolidate, but investors can consider accumulating, as the market would re-visit the all-time high eventually.

Support floors are seen resting at 1,530 points, followed by the 1,500 points psychological level and the 1,474 points.


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