FBM KLCI Bullish Breakout Suggests Further Upside Ahead

The local stock market extended rally for the second day of the year, boosted further by gains in regional markets as more investors returned from the year-end holidays to participate.  The FBM KLCI surged from opening low of 1,278.26 to a near 20-month high of 1,290.55, then closed at 1,288.24 to gain 12.49 points or 1% for the day, as 658 gainers led 184 losers on strong trading volume totaling 1.86bn shares worth almost RM2bn.

Rally to Stall at 1,300/1,305 on Profit-Taking
The surprisingly sharp rally in the past  two days was backed by robust follow-through buying momentum, representing a bullish breakout which promises further significant upside ahead.  However, for the immediate term, recent strong stock price gains should see keen profit-taking and selling stalling their rise as technical momentum becomes overbought, especially towards KLCI resistance at the 1,300 psychological level and the 29 April 2008 pivot high of 1,305.  Immediate support is revised higher to yesterday’s low of 1,278, with gap-up support at 1,275 which mirror the 23.6%FR Fibonacci Retracement (FR) of the upswing from the 1,233 pivot low of 2 November to the 17 November high of 1,288.  Stronger retracement supports are at 1,267 and 1,260, the respective 38.2%FR and 50%FR levels.

Revert to Sell on Rally Axiata, TM, Sime Darby & IOI Corp
Revert to Sell on Rally Axiata and TM toward revised higher upside targets of RM3.20, and also Sime Darby and IOI Corp as short-term technical  momentum will turn overbought. Further rally on lower liner  construction stocks MRCB and Zelan to RM1.60 and 80sen respectively will also see overbought condition and hence keen profit-taking interest.  On the other hand, rotational play could shift into the oil & gas sector, with laggards such as Kencana and SapuraCrest likely to attract bargain hunters.

source: TA securities

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