KL Composite Index – Consolidation time

· In line with regional’s performance, our market moved into a corrective mode which is to be expected given the recent strong performance on the back of improved investor sentiment and expectation of a year end economic recovery.

· Near term, our market will continue to take cue from the region’s performance as well as the upcoming Invest Malaysia conference whereby key policy initiatives are anticipated to be announced. Volumes are likely to be relatively lower ahead of such policy announcements but we do see certain degree of discounting being factor into prices which could lead to perhaps disappointment upon actual announcement.

· For the bullish thoughts to be maintained, we suspect that the bulls will need to take out the recent high of 1,091 in the near term else things can deteriorate further with doubts on the sustainability of the recent uptick sapping confidence as quickly as the bulls nurtured them. Adding to the danger remains to be the seasonality effect whereby the local market’s performance had been sub-par during 3Q based on historical perspective.

· Technically, the break of the secondary uptrend line from end March 09 as well as the fast flattening short term moving averages (30 days and 50 days) indicates that the recent market uptick could have lost a tremendous amount of momentum. Some further consolidation is therefore likely in the near term before a clearer direction can be detected. As mentioned above, unless and until the bulls are quickly able to punch through the recent high of 1,091, the bears could perhaps be lurking somewhere and strike when opportunity beckons. Looking at the weekly chart, we noted that the CI is resting precariously on the uptrend line stretching from the crisis low in 1998 at near the 1,053 levels while weekly RSI is rolling over, lending strength to the consolidation view. Immediate resistance we see at the 1,076 level with 1,091 as next while support is pegged at 1,053 with 1,030 – 1,023 as next.

· As for the recommended strategy, we continue to advise a rotational out of the cyclicals and into the defensive in anticipation of a more difficult trading environment over the course of the next few months.