Market review

• The MSCI Asia Pacific Index climbed 0.13% to 134.15, led by rallies in SHCOMP (1.1%) and HSI (0.6%), negating the 1.4% plunge in NIKKEI amid concerns the BOJ will not deliver on sky-high easing expectations on 29 Jul. Meanwhile, the Fed is most likely to leave interest rates unchanged on 28 Jul, with consensus predict ing a 48% chance that the Fed rate will hike in December.

• In anticipation of another tepid Aug reporting season and nagging 1MDB concern, KLCI closed near intraday low to 1661.4 (-6.8 pts). Market breadth was negative with 294 gainers as compared to 448 losers.

• The Dow slid as much as 100 pts on profit taking after rallying 8.7% since Brexit low (based on 25 July close), as sentiment was weighed down by sliding oil prices to a 3M low and slower-than-expected earnings from Mc Donald. However, strong earnings from Caterpillar and United Technologies coupled with robust June home sales pared the early losses to only 19 pts at 18474, ahead of the FOMC decision on 28 Jul.

Technical Insights

• Volatility to stay for a while

• We reiterate our view that as long as KLCI is unable to close decisively above the 1664 (9 June high) and 1667 (200-d SMA) levels, extended sideways consolidation is expected.

• Key resistance levels are 1670 (50% FR), 1684 (61.8% FR) and 1700 psychological barrier. On the flip side, a decisive fall below 1655 (mid Bollinger band) will trigger further retracement to lower supports at 1639 (23.6% FR) and 1622.

Market Strategy

• Ahead of the FOMC and BOJ meeting outcome, market could turn cautious against any negative surprises from the Fed/BOJ and the development from the 1MDB saga coupled with expectations of another lackluster Aug reporting season.

• Despite the negatives, optimism of better-than-than expected US economic data and results, hopes of more stimulus measures by Malaysian government as well as potential policy easing by BNM to stimulate slowing economy, we remain hopeful that KLCI is able to defend the 1630-1640 supports in the short term.

• Technical view: GTRONIC’ s share prices are likely to trend higher in the short to medium term amid improving 2Q16 results and in anticipation of stronger 2H16 prospects. Key resistances are RM3.37-3.72 while supports fall on RM3.00-3.16.

Source: Hong Leong Investment Bank Research - 27 Jul 2016