Market Review

• After a 0.1% mild profit taking on 22 June, the MSCI Asia Pac index resumed its uptrend with a 0.4% gain to 130 yesterday as financial markets are rallying on optimism that Thursday’s Brexit referendum will end wit h a vote for “remain” (with preliminary outcome to be known before noon today).

• On the back of cautious undertone, KLCI was traded within a tight range of 7.2 pts between an intra-day high of 1642.2 and a low of 1634.9 before inching up 2.3 pts, supported by a lower trading volume of 1.11bn shares compared to Tuesday’s 1.24bn shares. Overall market breadth was negative with 305 gainers as compared to 406 losers.

• Overnight, the Dow surged 230 pts or 1.3% to 18011 as investors bet U.K. will choose to remain in the European Union in a historic referendum. Sentiment was also boosted by oil & gas related stocks amid a 1.9% rebound in WTI oil prices.

Technical Insights

• Signs of bottoming up with key resistance at 1663

• On daily chart, a follow through oversold rebound may continue in the near term as index managed to end above 10-d/20-d/30-d SMAs, supported by bottoming up indicators.

• A decisive break above 1640 (23.6% FR) will see index moving higher towards 1650 and 1663 (200-d SMA) levels. Formidable resistances are 1685 (61.8% FR) and 1700 psychological barrier.

• Immediate support is situated around 1612 (16 May low) levels. Failure to hold at 1612 could see index dri fting lower towards 1590-1600 territory.

Market Strategy

• In tandem with overnight strong rallies in Dow and European markets coupled with crude oil prices, KLCI may continue its rebound for the 5th straight session after hitting a low of 1613 on 16 June.

• Should the final outcome favour “Bremain”, a relief rally could ensue in the coming days, but substantial upside is likely to be limited by the same factors such as tepid corporate earnings, slowing domestic economy and uncertai nties over the Federal Reserve’s monetary policy. Near term upside target is 1663 (200-d SMA) zones. A decisive break above 1663 will spur index higher towards 1671 (50% FR) – 1685 (61.8% FR) levels before heading towards a more formidable 1700 psychological barrier.

• Today, we highlight the technical perspective of SKPETRO after witnessing its share prices plunged 20% from monthly high of RM1.77. (see our separate Trading idea report)

Source: Hong Leong Investment Bank Research - 24 Jun 2016