Weekly Market Outlook - Overbought but rally still has legs (ext: BT)

It would be better if daily trading volume can stabilise between the 2-billion to 3 billion-share mark for more sustainable uptrend, says a research head

While technical momentum for KLCI, especially the daily and weekly slow stochastics indicators, has been overbought for some time, the technical overbought situation has yet to reach extreme levels, suggesting there could be more upside this week before the overbought situation becomes exaggerated which would call for a more significant profit-taking correction. Trend indicators remain strong to reinforce the current rally.

Nonetheless, it would be better if daily trading volume can stabilise between the 2-billion to 3 billion-share mark for more sustainable uptrend, as a huge spike in volume towards the all-time record of 4.7 billion shares in February 2007 will most likely form a bullish peak and hence trigger a sharp profit-taking correction.

On the daily KLCI chart, note that the next immediate resistance after last week's high of 1,037.81 is at 1,040.85, the September 22 2008 pivot high. A confirmed breakout above this pivot high will target 1,054, which is the 1.618X upside target projection of wave A (the distance of 801 low to 936 high), anchored from start of the current wave C (or wave B low of 836), in the expanded flat wave 4 correction. The next stronger hurdle is at 1,078, representing the 38.2 per cent FR of the major sell-down from the 1,525 all-time high of January 14 2008 to the 801 pivot low. Immediate support meanwhile is revised upwards to last Friday's low of 1,014, with the 1,000 psychological level and 983 acting as stronger downside cushions upon profit-taking correction.

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