Taiwan stocks are likely to stay range-bound near five-week highs this week, helped by expectations for better quarterly profits later this month, but price gains could be capped by stiff resistance at 7,000 points.
The main TAIEX index rose three percent last week, closing at 6,818.20 on Friday, and has gained 11.2 percent over the past three weeks, regaining ground it lost after a disputed presidential election on March 20.
"Taiwan stocks this week should consolidate, supported by expectations of strong first-quarter profits," said Alvin Teng, assistant research manager of SinoPac Securities.
But profit-taking could emerge quickly unless corporate profits exceed lofty expectations, analysts said, adding there was heavy resistance ahead at 7,000 points.
Taiwan companies must post first-quarter earnings before the end of April. Some analysts expect improving corporate profits into the second quarter.
"The market has already discounted solid first-quarter profits, but we believe the second-quarter will be even better," said Tu Jin-lung, president at Grand Cathay Investment Services, which manages US $40 million.
Tu said the TAIEX could test as high as 7,135 points - this year's intra-day high marked on March 5.
Taiwan's exports in the first-quarter have been unusually strong, hitting a record $14.8 billion in March, on the back of technology sales and demand from China, the island's largest export market.
Wall Street would be another focus as US stocks slipped last week despite generally strong corporate earnings.
US markets are a barometer for local investors as many Taiwan electronics firms supply big US tech companies.
ProMOS Tech, Taiwan's top memory chip maker, saw some profit-taking late last week on falling prices of dynamic random access memory (DRAM) chips.
However, shares of rival Nanya Technology could rise after strong first-quarter profits posted on Friday, reversing year-ago losses as product prices unexpectedly spiked higher and supply shrank, analysts said.
Display screen makers like AU Optronics, which rose the daily seven percent limit to T$$78.0 on Friday, are likely to attract further buying on rising demand for laptops, computer monitors and flat-screen televisions.
AU Optronics is expected to post first-quarter earnings per share later this month of T$9-12, said SinoPac's Teng, giving a price-earnings ratio of below 10, much cheaper than the overall TAIEX's 16-17.
Foreign investors sold a net T$2.95 billion (US $89 million) in Taiwan stocks on Friday, bringing total net selling over the past three sessions to T$5.14 billion.