Market Review

• The MSCI Asia Pac index surged 1.9% to 128.8 (+2.5% from 16 June’s low of 125.5) amid easing Brexit concerns after several weekend polls showed the remain camp regained momentum after the tragic shooting of a pro-EU British law maker, Jo Cox last week. Tracking bullish regional markets, KLCI rallied for a 2nd straight session with a 10-pt gain. However, market breadth was mixed as losers edged gainers by 1.02:1.

• Tracking global markets relief rally, the Dow soared as much as 271 pts in the early session on signs the campaign for the U.K. to stay in the EU was gaining momentum. Nevertheless, the early rebound was reduced to only 130 pts as the market will continue to be held hostage to 23 June’s vote as well as last week’s Yellen’s downbeat assessment of U.S. economic prospects, ahead of her testimony to the Congress tonight.

Technical Insights

• In the midst of correction

• On daily chart, a follow through oversold rebound may continue amid the positive two white candlesticks formation and signs of tick-up in indicators. A decisive break above 1637 (10-d SMA) will see index go higher towards 1650 and 1663 (200-d SMA) levels. Formidable resistance zones are situated at 1675-1700.

• Key supports remain at 1600-1613 levels. Failure to hold at 1600 could see index lower towards 1570-1580 territory, followed by critical long term support trend line near 1540.

Market Strategy

• KLCI may gain for the 3rd straight session, taking cue from overnight Dow’s rally as well as a 3% jump in Brent oil prices to close above US$50/barrel.

• Nevertheless, ahead of the Nuzul Al-Quran holiday tomorrow, the last two-day rebound is likely to be capped near 1650 levels amid anxiety over Brexit vote. Should the outcome (by Friday’s afternoon) favour “Bremain”, KLCI may then witness more frenzy buying interests to breach our weekly resistance beyond 1650 and marching towards 1675-1700 levels.

• Technical speaking, the trend of KLCI continues to undergo a consolidation phase, with strong supports near 1600-1613. In the case of Brexit scenario, KLCI may breach 1600 and could drift to 1570-1580 territories.

Source: Hong Leong Investment Bank Research - 21 Jun 2016