FBM KLCI may see imminent correction soon

Written by Maybank Investment Research
Monday, 28 September 2009 09:20

KUALA LUMPUR: Maybank Investment Research said the FBM KLCI lost 3.81 points last week in lacklustre post-Hari Raya trading and profit taking activities. Volume, on a daily basis, ranged from 678 million units to 751 million units and trading proved quiet after the Hari Raya holidays.

The FBM KLCI closed at 1,217.39 last Friday, Sept 25. The weaker support areas for the FBM KLCI are located in the 1,196 to 1,213-zone. The firm resistance areas of 1,217 and 1,248 will cap any rebound activities.

The FBM KLCI had previously consolidated in a tight range of 801 to 936 from October last year to April this year but broke above its previous key resistance of 936.63 on April 10 to a recent high of 1,231.49 on Sept 23.

"As the FBM KLCI broke above its previous resistance of 1,196.46, it has the potential to test its final and exhaustive upside targets of 1,237, 1,244 and 1,248. 1,248.34 is the key 61.8% retracement level of the drop from 1,524.69 (January 2008 high) to 801.27 (October 2008 low)," it said in a technical report on Sept 28.

Maybank Research said with the appearance of very clear bearish divergent daily and weekly signals, the FBM KLCI will be trapped in tight price ranges.

"As prices of key blue-chip stocks and indices rise, we believe that risk-reward ratios will increase i.e. potential risks would increase and potential rewards would greatly diminish. Profit-taking and liquidation on rallies may be the best strategy to adopt in view of the tiring daily and weekly technical signals of the FBM KLCI," it said.

The research house believed the high for the FBM KLCI could have been formed at 1,231.49 on Sept 23. Otherwise, any final push towards the major 1,237 to 1,248-zone would attract very heavy institutional selling.

It added the "FBM KLCI could undergo an imminent major correction soon".