Investors should continue to accumulate stocks on weakness, especially those in the banking, consumer, construction, plantation, property and oil & gas sectors, for further gains in the medium term, says a head of research-Share prices on Bursa Malaysia bounced back from a sell-off early last week, with the FTSE Bursa Malaysia Kuala Lumpur Composite index (FBM KLCI) touching a three-month low on Monday before staging a strong rebound, helped by positive economic data which offset investor concerns over high oil prices due to the unrest sweeping across the Arab world-Week-on-week, the FBM KLCI recouped 33-34 points, or 2-24 per cent to end at 1,522-61, with IOI Corp (+27 sen), DiGi-com (+RM1-82), MISC (+55 sen), Maybank (+16 sen) and Axiata (+12 sen) representing almost half of the benchmark index's gain- The average daily traded volume and value slowed down to 1-17 billion shares and RM1-74 billion respectively, from 1-73 billion shares and RM2-11 billion in the previous week, as buying momentum in lower liners waned given the geopolitical uncertainties in the Middle East and the resulting surging oil prices-The index's rebound last week was driven by external news, especially improving economic data from the US and signs that measures taken to cool the excessive growth in China have started to bear fruit- The US revealed last Friday further signs of improvement in its economy as the jobless rate unexpectedly dropped for the third straight month in February to 8-9 per cent and non-farm payrolls rose by 192,000- China, meanwhile, announced that it will target inflation as the top economic priority this year and set a 4 per cent target for full-year inflation and 8 for economic growth versus January's 4-9 per cent and last five year's average growth of 11 per cent respectively- While the economic recovery in the US and Europe can help cushion the blow from a government-engineered soft landing in China, inflationary pressures, especially on food items, could act as a dampener if consumption takes a beating- European Central Bank officials have already signalled an interest rate increase next month to curb inflationary pressure that could turn out to be detrimental to the eurozone's fragile growth if not handled tactfully- Meanwhile, the US deems such a move as unnecessary at its turf due to still-tame core inflation and the need to promote growth- One thing that could lead to a convergence of these contrasting views is prolonged chaos in the Middle East that would sustain the strength of crude oil prices- While the tight supply and demand situation for resources like crude oil and crude palm oil (CPO) should benefit oil and gas and plantation stocks and sustain buying interest in these sectors, it could be timely to accumulate selectively players in the construction sector- Some of them took a hit from their exposure in the Middle East due to concerns about potential project delays, cancellation and exodus of construction workers while investors showed less worries over the fact that CPO demand should be affected as well- The Middle East accounted for about 1-9 million tones or 11 per cent of total Malaysian CPO exports in 2010- The major importers are Egypt, Yemen and Iran, which accounted for 50 per cent, 24 per cent and 14 per cent of the total exports respectively- Similarly, despite the dark clouds, construction players' earnings can be cushioned from the unveiling of big ticket items locally under the Economic Transformation Programme, including the civil works related to the multi-billion-ringgit investments in the oil and gas sector over the next five years that was highlighted by Petronas last week- Any announcement pertaining to the Sarawak state elections that could come hot on the heels of two by-elections yesterday could be a potential re-rating catalyst as well- As for the broader index, anticipate further buying interest to sustain the upward momentum this week- Bank Negara Malaysia's stance on the Overnight Policy Rate this Friday will be closely watched- Expect the rate to remain at 2-75 per cent as last January's lower-than-expected exports growth comes as a reminder of the need to accommodate domestic growth on the back of still-tame inflation- Technical outlookNew spot month March FBM KLCI futures traded on Bursa Malaysia Derivatives rebounded by 35-5 points, or 2-4 per cent, last week to settle at 1,518 on Friday, mildly improving to a 4-6-point discount to the cash index, compared to the 6-77-point discount the previous Friday-Blue chips recovered from early losses on Monday sparked by higher crude oil prices due to spreading unrest in the Arab world, while lower liners lost further ground given jittery sentiment over rising geopolitical tensions- The index was gained 1-98 points to close at 1,491-25, recovering from an early sharp fall to a low of 1,474-38- Stocks bounced back on Tuesday, especially blue chips, encouraged by overnight gains on Wall Street and an economic report signalling China's moves to tame inflation may be working- The FBM KLCI ended up 11 points at the day's high of 1,502-24, but market breadth was mildly bearish on slower trade-The local market fell on Wednesday in sympathy with overnight US losses and regional weakness on concern the civil unrest in the Arab world will spread from Libya to Iran, with lower liners and small cap stocks suffering heavy losses- However, the benchmark lost only 2-96 points to settle at the day's high of 1,499-28, off an early low of 1,488-95, on very negative market breadth as losers bashed gainers 796 to 117 on a higher volume of 1-36 billion shares worth RM1-72 billion- Blue chips extended gains the next day and led lower liners recovery from recent losses as the region staged cautious rebound with improving economic data offsetting concerns over high oil prices due to the unrest sweeping across the Middle East- The key index rose 7-6 points to settle at 1,506-88- Blue chips rallied further on Friday, boosted by economic reports from the US to South Korea showing improving growth which helped offset surging oil prices- At the close, the key index was up 15-73 points or 1per cent at 1,522-61, off a high of 1-529-41, as 674 gainers led 148 losers on moderating buying momentum-The index's trading range ballooned to 55 points last week, compared with 37-82 points the previous week-Among the other indices, the FBM-EMAS Index rose 138-58 points, or 1-36 per cent to close at 10,364-74, but the FBM-Small Cap Index lost 210-27 points, or 1-68 per cent to 12,327-33, as small-cap stocks suffered further losses on stop-loss selling which flushed out weak holders-After flashing a buy signal last Tuesday, the daily slow stochastics indicator for the FBM KLCI has recovered above the neutral zone, while the weekly indicator flashed a buy signal just above the oversold mark, reinforcing a bullish momentum reading- The 14-day and 14-week Relative Strength Index (RSI) indicators have recovered above the 50-point mark following last week's strong rebound, suggesting bullish momentum should persevere this week-As for trend indicators, the daily Moving Average Convergence Divergence (MACD) trend indicator has also crossed for a buy signal on Friday, while the decline on the weekly MACD indicator is beginning to lose momentum- The +DI and -DI lines on the 14-day Directional Movement Index (DMI) indicator has contracted and touched base to trigger another buy signal-ConclusionFresh buy signals on the weekly slow stochastics, daily MACD and DMI indicators for the FBM KLCI are positive technical indications, which should promote further upside for the key index in the weeks ahead- Moreover, the overall stronger-than-expected economic numbers globally from the developed and emerging markets should offset concerns over surging oil prices, with increasing expectations the global economy would be able to sustain growth amid rising energy costs- As such, investors should continue to accumulate stocks on weakness, especially those in the banking, consumer, construction, plantation, property and oil & gas sectors, for further gains in the medium term-As for the benchmark index, a convincing breakout above 1,525, the 50 per cent Fibonacci Retracement (FR) of the rise from 1,474 low of November 29 2010 to the record high of 1,576-95 of January 6 and the 50-day moving average level of 1,528, would enhance upside momentum to challenge 1,537, the 38-2 per cent FR and target 1,552 next, which is the 23-6 per cent FR- Immediate support is upgraded to 1,513, the 61-8 per cent FR which mirrors the 100-day moving average level, with stronger supports coming in at 1,500 or 1,498, the 76-4 per cent FR, and subsequently at 1,488- The double-bottom support from 1,474 will act as a formidable support floor for the blue chip benchmark-The subject expressed above is based purely on technical analysis and opinions of the writer- It is not a solicitation to buy or sell-...

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