Weekly Market Outlook - Overbought, correction may set in (ext: BT)

Despite increasingly overbought technical conditions, buyers were able to shore up the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) to an 11-month high last week for a third straight week of gains, encouraged by further breakout rallies in the region even after China's stock markets suffered a 5 per cent correction in mid-week.

While daily and weekly technical momentum indicators for the FBM KLCI are flashing increasingly overbought signals last week, trend indicators signal stronger uptrend ahead. Note, however, that overbought conditions could persist if buying momentum improves towards the 1.5 billion-to 2-billion share mark, and if Asian stock markets extend their breakout rallies on more evidence of economic recovery for the second half of the year.

For technical picks, investors should look for buying opportunities in blue chips such as Genting, Genting Malaysia, IOI Corp, Sime Darby and Tenaga, but should lean towards selling on rally AirAsia and banking stocks AMMB, BCHB, and Public Bank given the increasingly overbought technical condition.

Maintain Buy-on-Dip call on oil & gas related stocks Dialog, Kencana, Petra Perdana, SapuraCrest and Scomi Group given the upside resilience in crude oil prices which bounced back from a sharp correction and are likely to re-test the US$70 a barrel resistance level in the near term.

As for the FBM KLCI, watch for the July 1 2008 pivot high of 1,188 to act as immediate resistance this week. A decisive breakout will see the 1,200 psychological resistance being challenged, with next upside hurdle expected at 1,220. On the downside, immediate cushion is anticipated at 1,156, with stronger support platforms at 1,140 and 1,120.

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