Review: Over the week, although there was no real catalysts, optimism was quite clearly in the air.

With the Dow Jones Industrial Average having staged seven consecutive days of an uptrend since July 13, technical analysts say this is an extremely positive indicator for the start of a rally.

In the last 10 days, the CI has impressively shot up by 88.5 points or 8.3% to 1,156.

Significantly on July 23, the Dow Jones Industrial Average bounced back above 9,000 levels for the first time since January – on a day when Wall Street learned that more than 500,000 Americans filed for jobless claims last week.

While US earnings reports show corporate profit lower from what it was a year ago, they are now beating first quarter earnings.

Meanwhile, both the Dow and the FBM-KLCI sit at their highest point this year. Could this be panic buying, as investors jump in for fear of being left behind?

Second Finance Minister Datuk Seri Ahmad Husni Mohamad Hanadzlah says the Malaysian economy is expected to register a mild recovery in 2010 following the country’s two stimulus packages and interest rate cuts, and in line with a global recovery by then.

With the emerging signs of stabilisation, the International Monetary Fund has projected global recovery in 2010 to record 2.5% growth.

This is supported by the Asian Development Bank, which says that Asian economies appear to have turned the corner from the global recession and should be able to double next year, the anaemic growth rates they are expected to post in 2009.

It however warns in its latest Asia Economic Monitor that the road to full recovery is strewn with hazards. Emerging East Asia, which excludes Japan and the newly-industrialised economies (NIEs) of South Korea, Taiwan, Hong Kong and Singapore, ‘could see a V-shaped recovery’, with growth dipping sharply in 2009 before recovering next year to its pace in 2008.

The biggest single threat to continuing recovery identified by ADB report is the danger that recession in the US and Europe, on which Asia relies heavily for export markets, will last longer than generally expected.

Outlook: A technical analyst from ECM Libra says that the bulls might take out the 1,165 key resistance level of the KLCI by next week.

“Some of the key drivers of the market lately are psychological and technical. We’re got the catalyst and momentum driving this uptrend,” he says.

He adds that while the market is in overbought territory at 79.4%, the bull appears strong. Volumes have also been increasing, although not excessive at over one billion.

“This indicates that there are many people still sitting on the sidelines. This is good news, as it shows many are still non-believers, hence the market has room to go,” he says.

As the run up in the past 10 days have been hogged by the blue chips, he feels that lower liners will begin playing a central role in the coming weeks.

“The blue chips ought to stabilise in the next 1 to 2 weeks. Lower liners will start to catch up. The steel and construction stocks could be interesting,” he says.

Should the resistance of 1,165 be broken, he sees the CI charging to the next level of 1,200. Meanwhile, the support lies in the 1,150 level.