Market may undergo a healthy correction

REVIEW: As usual, the frail overnight US markets prompted profit-taking on Bursa Malaysia, which saw the bellwether FBM Kuala Lumpur Composite Index easing 3.34 points to 1,561.32 at the start of the week.

Trading was sluggish, with many players sitting on the sidelines adopting a cautious stance, watching closely whether Greece can avoid becoming the first eurozone country to default on its debt as it votes on a package of harsh austerity measures later on Wednesday and Thursday.

But, unlike the Asian equities, which fell quite significantly on liquidation pressure, the local bourse only suffered a mild setback, as some nibbling on dips helped cushion the downside.

At the final bell on Monday, the key index shed a small 2.14 points to 1,562.52 in a generally range-bound trade.

Then, the US market snapped its three-day losing streak, with the Dow rebounding a steep 108.98 points to 12,043.56 in overnight session on fresh buying momentum, lifted by increasing confidence the Greek parliament would pass an unpopular austerity plan, and as French banks outlines an agreement to roll over Greek debt. Tracking the gains, regional equities recovered between 0.1% and almost 1%.

On the home front, share prices on Bursa resumed their upward thrust on renewed optimism after a brief respite, riding on the solid offshore strength. Blue chips, especially the banking issues topped the most up list, thus propelling the key index 7.50 points higher to close at the day's peak of 1,570.02 in active volumes on Tuesday.

Overnight Dow continued to climb the next day, firming another 145.13 points to 12,188.69 amid growing confidence that a solution to Greece's debt crisis was near. Other risky assets, such as crude oil jumped on the bandwagon, spiking US$2,28 to US$92.89,

Elsewhere, Asian equities also joined the rally on strong follow-through interest but surprisingly, trading on the local bourse was underperformed on the whole despite setting a new record on closing basis, with the FBM KLCI notching up a marginal 4.99 points to 1,575.01 in mid-week.

Thereafter, the local bourse sustained the gradual upward momentum, with the key index breaching the historical peak to post a new all-time high of 1,579.07, up 4.06 points on Thursday, taking encouragement from the positive offshore showing.

And yesterday, the FBM KLCI set another new record, ending 3.87 points higher to 1,582.94 on follow-through nibbling.

Statistics: For the week, the major index perked up 18.28 points, or 1.2% to 1,582.94 yesterday, against 1,564.66 on June 24.

Total turnover for the week stood at 4.518 billion shares worth RM8.266bil, versus 4.602 billion units valued at RM7.633bil done previously.

Technical indicators: The daily slow-stochastic momentum index had indicated a tentative topping out pictogram at the overbought area but retained the buy call yesterday. The past week witnessed the 14-day relative strength index hitting a high of 75 points on Thursday before reversing slightly to end at 72 points level yesterday.

In stark contrast, the daily moving average convergence/divergence (MACD) histogram sustained the upward expansion against the daily trigger line to stay bullish.

Weekly indicators were positive, with the weekly slow-stochastic momentum index retaining the posture above the 80% bullish line and the weekly MACD continuing to expand upward against the weekly signal line, albeit on a slow pace.

Outlook: In line with our expectations, Bursa Malaysia extended the upward thrust, with the bellwether FBM KLCI eclipsing the historical peak to set a new record amid gains in the blue chips on half-year “window-dressing” activity the past week, boosted by a rally in overseas markets on growing confidence of a settlement in eurozone debt crisis.

Based on the daily bar chart, the key index is now flirting at the uncharted territory. Hence, no one knows exactly where would be the new apex but one thing we are very certain is the prevailing trend is bullish and it will remain positive, as long as the short-term ascending line, now resting at about 1,560 points and still rising, is intact.

Lower support is resting at the 50-day simple moving average (SMA) of 1,545 points, 100-day SMA of 1,531 points, and the next, at 1,519 points, which is the 200-day SMA.

Technically, indicators such as the daily and weekly MACDs are painting a beautiful landscape, suggesting more gains in the pipeline, but with other measurements signalling growing overbought condition, it looks like the local bourse may pause for a healthy correction or range-bound consolidation this week, seen as giving investors an opportunity to accumulate more.

On the upside, the FBM KLCI is expected to encounter stiff resistance at the 1,585-1,600 points band and at every 20 or 30 points interval