KUALA LUMPUR (Aug 27): The FBM KLCI looks set to test the 1,590-point level today on the back of the sharp overnight gains at Wall Street as China-related worries abated.

Any limitation on the gains for the local market could stem from lingering domestic worrries including political uncertainties, the upcoming Bersih 4 rally as well as as still wobbly ringgit.

Wall Street rebounded sharply on Wednesday after six straight days of large declines caused by China worries, while long-dated bond prices fell after a top Federal Reserve official scaled back expectations of a September rate increase, according to Reuters.

The dollar rebounded for a second straight session as firmer US stocks and a recouping of some losses in European shares reduced the need to buy safe-haven currencies such as the yen. Oil prices fell, however, after a drawdown in US crude stockpiles was offset by a larger-than-expected build in gasoline, it said.

AllianceDBS Research in its evening edition Wednesday said that supported by the strong up close in the preceding day, the FBM KLCI had on August 26 only traded to a low of 1,554.37 after opening the day on a negative note.

However, it said buying interest chipped in to lift the benchmark index back up to a high of 1,585.59 before settling near the day’s high at 1,580.37 (up 16.43 points or 1.05%).

“In the broader market, gainers and losers were equally matched with 407 stocks ending higher and 407 stocks finishing lower. That gave a market breadth of 1.00 indicating the bulls and bears were even and fighting for control,” it said.

AllianceDBS Research said the higher high on August 26 was not a surprise because market participants chose to ride on the positive momentum created on August 25.

It said the strong market recovery of 82 points (high of 1,585 minus low of 1,503) in the last two days was seen as a great relief to many given the loss of 241 points measuring from the high of 1,774 to the low of 1,503 in 16 market days.

“Risk taking market participants apparently had continued to acquire blue chips at a discounted price despite the prevailing poor market sentiment.

“The rationale behind the stock purchases was not beyond comprehension because the not-to-buy decision with cash lying idle made little sense for being fearful of good quality blue chips especially when the stocks have already fallen by double digits.

“Following the up close, the benchmark index is expected to move towards 1,595–1,600,” it said.  

The research house said that indicator wise, the MACD was still below the 9-day moving average line.

“The analysis of overall market action on August 26 revealed that buying power was stronger than selling pressure.

“As such, the FBM KLCI would likely trade above the 1,585.59 level on August 27,” said AllianceDBS Research.