Market review

• Asian markets ended mixed after recent strong gains as investors await a flurry of key economic data from China on 12 Aug. Regional currencies and bonds prices rose as dollar weakened amid views that the Fed will be in no rush to boost interest rates due to uneven global growth.

• After traded within a tight range of 7.1 pts within intra-day high of 1673.6 and a low of 1666.5, KLCI inched up 1-pt to 1673. Market breadth was positive with 436 gainers against 358 losers, with focus stayed on lower liners and penny stocks, reflected by a 12.8% jump in volume at 2.37bn shares with a lower decline of trading value by 4.2% to RM1.76bn.

• The Dow continued its tight range bound pattern within 18561 (+28 pts) and 18468 (-66 pts) before easing 37 pts at 18495, weighed down by energy stocks due to sliding oil prices following an increase in weekly crude supplies while Saudi Arabia revealed record crude production in July. Meanwhile, the US 10-year notes dropped 4bps to 1.51% amid expectations that the Fed is in no rush to raise interest rates.

Technical Insights

• Poised to break 3-month high of 1675

• We remain optimistic that KLCI will break 3M high of 1675 in the near term, following a decisive breakout above 100- d/200-d SMAs and downtrend line last week coupled with upticks in indicators.

• A convincing breakout above 3-month high of 1675 (19 July) will spur KLCI higher towards 1684 (61.8% FR) and 1700 targets. On the flip side, the ongoing rebound will be disrupted i f the index retraces below the 1666 levels (resistance-turned-support of 200-SMA) again. Lower supports are 1658 (30-d SMA) and 1649 (50-d SMA).

Market Strategy

• In the near term, KLCI is likely to stay sideways but with an upside bias to break 1675 amid improving technical outlook and stimulus-driven measures by central banks and government. However, further strong upside may be capped (beyond 1700), given the nagging concern in China economy, retreating oil prices and the ongoing Aug reporting season.

• Portfolio (FIG 4). We closed our position on ENGTEX (4.2% return) yesterday amid expiry.

• Stock on radar (separate report). Today, we highlight SCABLE (Trading Buy) for a potential bullish wedge pattern in the next 2-4 weeks after undergoing a brief sideways consolidation. Key upside targets are RM1.36- 1.50 whilst supports fall on RM1.23-1.27. Cut loss at RM1.22.

Source: Hong Leong Investment Bank Research - 11 Aug 2016