Market outlook report by Hwang DBS Vickers Research

KUALA LUMPUR: Hwang DBS Vickers Research (HDBSVR) said the bellwether FBM KLCI wanted to move higher last week ended Sept 24, climbing in the initial days (to a peak of 1,479.59) before succumbing to selling pressures (and hit a low of 1,445.33) towards the end.

It settled at 1,451.19 on Friday for a weekly decrease of 15.8-point or 1.1%. Falling in tandem during the week were the FBM 70 Index and the FBM ACE Index, down by 0.4% and 0.8%, respectively.

Daily average trading volume was larger at 1.2b shares (versus 894.0m units a week ago) though average trading value came in lower at RM1.6b (from RM1.8b), as investors' interest skewed to the small-mid cap companies.

With news flows anticipated to go light this week - no major events are spotted on our calendar - we reckon the mood will be to sell rather than buy equities following the recent winning streak.

Routine reports on tap include: (a) Gamuda's latest quarterly financial result announcement scheduled on Tuesday; and (b) the monthly banking statistical bulletin for Aug due on Thursday.

There may also be lesser tendency for window-dressing activity to prevail as we approach the end of 3Q10, given the buoyant market rally to-date (the FBM KLCI is now up 10.4% in the current quarter and 14.0% since the beginning of the year).

From a technical perspective, after touching and subsequently backed off from 1,480 thrice since two Fridays ago, the FBM KLCI is signaling that it could be about time to take a rest. After all, it had been climbing at a quick and steep pace, up in 13 of the past 16 weeks before last week's decline.

Even so, measuring from the highest point of 1,479.59 to the trough of 1,445.33, the fairly smallish percentage drop of 2.3% suggests that further downsides remain likely.

We have set our lines of defence for the FBM KLCI at 1,435 (first) and 1,415 (second) at the moment.

Below this, a major support level is drawn at 1,395. They translate to probable pullbacks in the range of between 3% and 6% from the recent peak, which will then sit somewhere within the past market correction pattern since the current leg of rally began in late May this year.

Yet, this may not be the end of the 1½-year-old stock market uptrend. Until and unless a nasty surprise is unleashed to trigger a trend reversal, the positive momentum will probably carry the benchmark index to fresh highs beyond the ongoing consolidation process.

On the chart, the FBM KLCI will be eyeing to overcome 1,465 (immediate resistance) before testing 1,495 (next resistance) when it eventually resumes its way up.