IT’S A psychological thing. People want the local bourse to correct before buying more.

It’s been a good run on the local bourse, but before the FBM Kuala Lumpur Composite Index (KLCI) can tirelessly speed up to the next pit stop, it needs a much needed breather before positioning for its bullish lap.

After heading north over the last six months, and gaining 38.5% on a year-to-date basis to 1,214, it is no surprise that some resistance has emerged.

The FBM KLCI has been encountering strong selling pressure, ever since it penetrated the heavy psychological resistance level of 1,200.

The short-term negative technical reading is pointing towards a further pullback.

Hence, a technical analyst from RHB Research expects a retest of the 10-day simple moving-average of 1,211 and the 1,200 psychological support soon.

A technical analyst with ECM Libra says that another source of concern is the Shanghai Composite Index which has broken below its short-term 30-day red moving-average line.

“If the Shanghai market does not break back above this short-term dynamic resistance, it could trigger an increased level of profit-taking activity among regional markets, particularly our local FBM-KLCI,” he says.

He recommends being prudent and taking a little money off the table, especially with such significant gains in recent times.

The bigger picture, however, remains positive.

In the coming weeks, newsflow on new construction projects such as the RM1bil low-cost terminal and the RM7bil LRT extension will start to filter through.

Also, speculation on potential policy measures in the upcoming 2010 Budget on Oct 23 could give the market a boost in the coming weeks.

“Pending any tangible bearish signs, we maintain our positive outlook for the FBM-KLCI after this wave of profit-taking activities,” says the RHB analyst.

He also remains optimistic and maintains his short-term upside target of 1,250.

“Owing to the absence of major negative catalysts, the index should be able to sustain above these support levels for now,” he says.

He advises that investors track the leads from Wall Street and the development of the G-20 summit in Pittsburgh to assess near-term market conditions.

CIMB Research head Terence Wong views potential share placements by government-linked companies such as Khazanah Nasional Bhd as a win-win proposition for Malaysia as they improve the free-float and liquidity while giving investors the opportunity to ride on the upside of the market.

He says placements can also help renew foreign investor interest and drive a re-rating of the market.

Wong maintains his end-2010 KLCI target of 1,400, based on an unchanged mid-cycle price/earnings of 15 times. Malaysia’s dividend yield of close to 5% is an added attraction, being the highest in the region.

Meanwhile, China is likely on track to post 9% growth for its third-quarter gross domestic product (GDP), if the first of the many purchasing manager’s index (PMI) surveys is anything to go by. The official China PMI will be released on Oct 1.

In the latest China business survey, the headline index for current business conditions rose to 60.47 from 56.80 in August. That’s just under the recent peak of 61.51 posted in April this year but well above the trough of 35.20 in December last year.