Weekly Market Outlook - KL bourse -- overbought but extended gains likely (ext: BT)

Investors are advised to take profits or sell on rally banking stocks given their increasingly overbought technical conditions, says a research head

With higher-than-forecast earnings from financial companies and bullish economic data from the US last Friday, highlighted by the lower-than-expected jobless rate for June, further upside for stock markets in the region could likely translate into extended gains locally despite the persistently overbought technical conditions. What is sorely needed is for buying momentum to recover towards the 1.5 billion to 2 bilion shares mark for a more sustainable rally this coming week.

Nonetheless, sector-wise, investors are advised to take profits or sell on rally banking stocks AMMB and BCHB given the increasingly overbought technical conditions. Axiata and Sime Darby are also attractive blue-chip candidates for profit-taking. However, in the lower liner space, look for buying opportunities in Ann Joo Resources, Sino Huaan, MRCB, Tebrau and UEM Land as last week's profit-taking correction has greatly neutralised their overbought technical conditions, paving the way for recovery ahead.

As for the FBM KLCI, the 1,200 psychological level will be an important breakout level to watch for further upside potential going forward. A decisive breakout will see next upside hurdle at 1,220, with 1,248, which represents the 61.8 per cent FR of the fall from the 1,525 all-time high to the 801 pivot low, acting as a major resistance. On the downside, immediate support is revised to 1,171, with 1,164 and then 1,156, acting as stronger support platforms.

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