While technical momentum indicators for the KLCI improved further after last week's strong rally, weaker buying momentum is likely to draw out stale bull sellers this week to check upside. Moreover, the completion of the Umno elections, together with the likelihood of further downward correction for US stocks this week should grease downside and increase profit-taking pressure this week.
On potential downside for this week, a decisive break below 885, the 38.2 per cent Fibonacci Retracement (FR) of the bear market rally from 801 pivot low to 936 high, will accelerate fall towards the immediate support at 869, which is the 50 per cent FR. A breach below this support will grease downside towards the next meaningful support at 853, the 61.8 per cent FR, while the early December pivot low of 835 will act as a formidable support floor. On the flipside, expect strong resistance from last week's high of 890 to cap immediate upside, with the 900 psychological resistance acting as a formidable ceiling.
As daily trading volume is unlikely to increase much due to the weak buying momentum, strong presence of stale bull sellers and profit-taking interest, expect local stocks to suffer downward corrections this week. Banks such as AMMB, BCHB, Maybank and Public Bank should correct further after enjoying strong gains last week, as overbought momentum caps their upside potential. On the other hand, construction stocks may be good to bargain on dips on hopes the new Prime Minister will expedite projects highlighted under the mini-Budget and potentially announcing more stimulus measures to boost the economy.
The subject expressed above is based purely on technical analysis and opinions of the writer. It is not a solicitation to buy or sell.
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