Market Outlook (This Week) - Extended KLCI rally towards 936 expected (ext: BT)

Plantation, oil and gas, and construction stocks are expected to outperform the broader market given the sustained rise in prices of crude oil and global commodities

The technical picture for the local market has improved markedly following last week's strong recovery, with trend indicators for the KLCI displaying further strength to reinforce the current upswing.
Moreover, the resilient US stock market, which rose further last Friday despite the swelling unemployment rate which expanded to a 26-year high of 8.5 per cent, suggests that sustained gains in stock markets abroad should filter through and provide further lift to the domestic market this week.

For the KLCI, an extended rally towards the year-high of 936 seen on January 7 is probable before more significant profit-taking resistance emerges. This important high is close to 940, the 38.2 per cent Fibonacci Retracement (FR) of the fall from the 1,164 high of July 31 to the 801 pivot low of October 28 last year, which should cap upside potential this week.
On the downside, expect immediate cushion to come in at 890, the previous week's high which becomes the support, with a stronger base seen at 869, the 50 per cent FR of the bear market rally from 801 low to 936 high.

Nonetheless, unless buying momentum stages a welcome return with daily volumes expanding above the one-billion-share mark to sustain an extended rally on local stocks, investors can expect selling on rally to restrict upside potential, especially towards the 936/940 region.

Sector-wise, we expect plantation, oil and gas, and construction stocks to outperform the broader market given the sustained rise in prices of crude oil and global commodities, while banking stocks should see profit-taking pressure after the decent gains enjoyed last week.

The subject expressed above is based purely on technical analysis and opinions of the writer. It is not a solicitation to buy or sell.