Further Bursa upside likely early in the week

Investors can expect rubber glove makers Adventa, Latexx and Supermax to extend gains while Kinsteel, UEM Land, Dialog, Kencana, SapuraCrest, Leader Universal and Land & General may rise further, says a research head


Bursa Malaysia shares staged strong rebound last week on positive news flow with rubber glove makers and technology stocks leading gains, given the bullish economic outlook and optimism ahead of the Invest Malaysia conference when the New Economic Model will be announced by the government.

The blue-chip barometer FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) bounced back 18.54 points or 1.4 per cent last week to close at 1,315.14, with CIMB (+56 sen), Sime Darby (+24 sen), Maybank (+18 sen) and TM (+ 20sen) representing almost four-fifth of the index's gain. Daily average traded volume and value surged to a two-month high of 1.04 billion shares worth RM1.6 billion, compared with the 687.4 million shares and RM1.14 billion average the previous week.

The market received further reassurance last week after Bank Negara Malaysia said the economy is on a firm recovery tract and projected a robust economic growth of 4.5 per cent to 5.5 per cent, which is much higher than earlier government projection. The growth would be led by a strong rebound in external and domestic demand. Exporters in the manufacturing sector like technology and glove plays benefitted as their share prices continued to rise as a result, with the latter benefitting from a health reform measure in the US as well. Malaysia's trade numbers, the US ISM manufacturing survey and factory orders that will be released this week are expected to sustain interest in the export-oriented sectors.

The much anticipated Invest Malaysia conference is around the corner and the market is anticipating the Prime Minister to announce solid measures to drive Malaysia's economic growth. The big question is how bold and detailed will his revelation be.



Irrespective of what will transpire, the FBM KLCI is expected to charge ahead this week based on his past reformist measures since he took over. Apart from setting the stage for the services sector to become the new growth model, the market is also anticipating him to make announcements on big ticket items, impending electricity tariff review and relaxation of some rules in the capital market that stifle growth.

With leaders of the 16 Euro region agreeing on a plan to seek IMF's help and provide bilateral loans at market interest rates to aid debt-stricken Greece, external risks have subsided a bit. In fact, the outcome of US factory orders, ISM Manufacturing, non-farm payrolls and vehicle sales data that will be released this week are expected to be supportive of further expansion in global equity markets. Thus, later part of this week could be a good time to sell into a rally and lock in the profits.

Technical outlook

Spot month March KLCI futures contract traded on Bursa Malaysia Derivatives Bhd climbed 23 points, or 1.8 per cent week-on-week to 1,321, improving significantly to a 5.9-point premium to the cash index, against the 1.4-point premium the previous Friday.

The domestic stock market ended lower last Monday, dragged down by weaker regional markets after the surprise interest rate hike in India raised concern that central banks in the region will introduce more steps to tackle inflationary pressure. However, stocks bounced back sharply the next day, with rubber glove makers leading the rise on optimism the passage of a US healthcare bill by President Barack Obama will boost the demand for rubber gloves.

Stocks extended recovery on Wednesday, with technology stocks leading gains in line with regional peers due to signs of a robust rebound in global demand for semiconductors. Despite a mixed showing on regional markets the following day due to concern over European sovereign debt, local stocks extended gains with lower liners leading gains on increased rotational trading plays while blue chips consolidate.

The market sustained gains for a fourth straight session on Friday, lifted by hopes next week's Invest Malaysia conference will see the government proposing more liberal measures.

The daily slow stochastics indicator for the KLCI is now in the overbought zone after triggering a buy signal last Tuesday (Chart 1), while the weekly indicator has levelled in the overbought area. The 14-day and 14-week Relative Strength Index (RSI) indicators bore higher readings of 62 and 67 respectively, neutralising last week's bearish divergence signals.

On the other hand, the daily Moving Average Convergence Divergence (MACD) trend indicator has re-hooked up and is set to trigger a "buy" signal, strengthened by a similar hook-up on the weekly MACD indicator. On the 14-day Directional Movement Index (DMI) trend indicator, the +DI and -DI lines expanded outwards to signal stronger up-trend ahead, as shown by the rising ADX line.

Conclusion

While momentum indicators reflected overbought condition for the KLCI, trend indicators are reversing their bearish signals, with the daily MACD set to trigger a "buy" on further strength. As such, investors can expect further upside early this week ahead of the Invest Malaysia conference tomorrow and Wednesday, before profit-taking and selling interest which is likely to increase by the later part of the week given the sell-on-fact traders mentality.

Note that last week the index managed to hold above 1,292, the 38.2 per cent Fibonacci Retracement (FR) level of the 1,224 trough to 1,334 peak, before bouncing back up for a strong V-shape recovery. The index's strength in sustaining above 1,308, the 23.6 per cent FR level, will improve upside bias toward 1,325 and subsequently the two-year peak of 1,334 of 11 March this week. A breakout above this peak, especially backed by strong follow-through buying, will fuel upside toward our immediate upside target of 1,354, representing the 76.4 per cent FR of the bearish trend from 1,525 all-time high to the 801 low. Immediate support is now upgraded to 1,308, with 1,300 as a stronger base.

For this week, expect rubber glove makers Adventa, Latexx and Supermax to extend gains on hopes earnings will expand further with passage of the US healthcare bill boosting demand, while Kinsteel, UEM Land, Dialog, Kencana, SapuraCrest, RCE Capital, 3A Resources, Leader Universal and Land & General may appreciate further on keen rotational plays.

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