FBM KLCI poised to consolidate further (BT)

Given the sharp profit-taking correction last week, the local stock market should fall into a consolidation or base-building phase this week, which would be ideal to bargain hunt for eventual recovery post the Chinese New Year holidays. The fully neutralised technical condition will benefit investors who had missed the boat in the early January rally, hence they should look into buying on dips or accumulate blue chips. Chart wise, big caps such as CIMB, Gamuda and Maybank are good bets while lower liners like E&O, Sarawak Cable, UEM Land, DRB-HICOM, Muhibbah Engineering, Mulpha International and KNM Group are preferred for good medium-term upside potential.

As for the FBM KLCI, immediate Fibonacci Retracement (FR) supports are at 1,537 and 1,525, the respective 38.2 per cent FR and 50 per cent FR of the rise from 1,474 low of November 29 2010 to the recent all-time high of 1,576.95 ( January 6, while the solid support platform will be at 1,513, the 61.8 per cent FR. This retracement level was proven solid during the previous correction phase after the index rallied from low of 1,445 (September 24 2010) to the high of 1,532 (November 10 2010), when the 61.8 per cent FR level then was 1,478, just 4 points below the November 29 pivot low.

As for current resistance, it would be at 1,565, the 1.382 Fibonacci Projection (FP), and next at 1,576, the 1.5FP which also represents the recent record high. A decisive breakout would target 1,586 and 1,599, the respective 1.618FP and 1.764FP. Going forward, a confirmed breakout above 1,600 would target 1,618, the 2FP.

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