Market Outlook (This Week) - Profit-taking correction on Bursa looms (ext: BT)

Penny stocks such as E&O, Muhibbah, Ranhill, Zelan, BJCorp, Johan and Pelikan are expected to out-perform the broader market with huge percentage gains

While the increasingly short-term overbought momentum on the KLCI suggests profit-taking correction potential for this week, stronger trend indicators implied that this initial bear market rally could morph into a bull market rally. Moreover, last Friday's bullish breakout was supported by strong buying momentum in excess of one billion shares, which is the hallmark of a developing bull market if the strong daily trading volumes sustain for an extended period.

Nonetheless, investors should note significant KLCI resistance levels at 963, the September 18 2008 pivot low and the 200-day SMA at 969, which must be taken out convincingly to promote an extended rally towards more formidable resistance firstly at 983, the 50 per cent Fibonacci Retracement of the downfall from 1,164 pivot high of July 31 2008 to the 801 pivot low of October 28 2008, and then 994, the which is the 38.2 per cent FR of the sell-down from 1,305 pivot high of April 29 last year. A stronger ceiling this week is anticipated at the 1,000 psychological level.

Meantime, immediate support is revised higher to the January 7 pivot high of 936, then 926 and next at 920, the 23.6 per cent FR from the 1,305 pivot high. Stock-wise, expect plantation stocks such as IOI Corp, KLK and Sime Darby to surge further given the strong rally in CPO prices towards the RM2,300 a tonne mark, while penny stocks such as E&O, Muhibbah, Ranhill, Zelan, BJCorp, Johan and Pelikan should out-perform the broader market with huge percentage gains.

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