FBM KLCI - Despite showing tendencies of upward momentum

So near yet so far. Despite showing tendencies of upward momentum, external headwinds are obstructing the FBM KLCI from registering new record levels at the moment. Nevertheless, if the underlying resilience persists then it could only be a matter of time before the bellwether scales greater heights ahead.

The benchmark index – caught inside a tight trading band of 10-point – finished at 1,564.66 last week, quite close to where it was (at 1,563.43) two Fridays ago. Also closing broadly unchanged for the week were the FBM 70 Index (flat) and the FBM ACE Index (-0.3%) although market breadth came in negative every day except Friday. Daily average volume of 918.2m shares valued at RM1.5b was better than the 824.1m units worth RM1.6b traded the previous week.
Regional bourses staged a rebound last week, paced by Japan (+3.5%), Indonesia (+3.4%) and Philippines (+3.3%). Over on Wall Street, major U.S. equity indices posted a weekly change of between -0.6% and +1.4%. With the U.S. economy still on the mend (which has prompted the official economic growth projections to be cut by the Federal Reserve last week) and the threat of contagion effects from Europe’s debt crisis remains, sentiment among equity investors (especially in the U.S. and Europe) is expected to be weak in the near term.

This could put a cap on Malaysia equities performance for the time being. More so when there are no fresh internal catalysts to stimulate domestic buying interest. On the news front, not much is anticipated in the week ahead, other than the debut listings of MSM Malaysia Holdings (on Tuesday; indicative market cap of RM2.4b) and Eversendai Corporation (on Friday; indicative market cap of RM1.3b).

But from a technical perspective, we sense that there is more upside potential than downside risk going forward. We look out for the FBM KLCI to challenge the immediate resistance line of 1,575 soon. An ensuing breakout will represent a bullish sign, with the benchmark index set to ride on the momentum generated to climb to the next resistance target of 1,605. The FBM KLCI will then plot a sequence of higher highs along the way, breaking the record peak of 1,577 set in early Jan this year. The prevailing resilient pattern, meanwhile, could attract buying activity from bargain hunters if and when the market pulls back. Our first two support levels for the bellwether are pegged at 1,550 and 1,530, respectively.

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