Market review

• Ahead of a flurry of key economic data from China today, Asian markets mostly retreated yesterday on profit taking, taking cues from declines in Wall St overnight and lower energy and raw materials stocks amid sliding oil prices. Sentiment was also dampened by recent strength in regional currencies which weighed on earnings outlook of export-oriented companies.

• Bucking mixed regional undertone, KLCI continued to advance further (+5.8 pts to 1678.8) after breaking our envisaged 1675 resistance, led by bargain hunting in CIMB (+11 sen to RM4.60), MAYBANK (+5 sen to RM8.00), PBBANK (+10sen to RM19.66), MISC (+8 sen to RM7.68) and TENAGA (+6 sen to RM14.58). Market breadth was positive with 416 gainers against 381 losers.

• The Dow staged a breakout of its recent tight range bound pattern to close up 118 pts to a fresh record high at 18614. Sentiment was boosted by better-than-forecast profits at retailers Macy’s Inc. and Kohl’s Corp coupled with a rebound in energy-related stocks amid a 4.2% rally in WTI oil prices on speculation that OPEC will try to restrain output during an informal meeting in late Sep.

Technical Insights

• Grinding higher towards 1684 after breaking 1675

• As anticipated, KLCI finally broke our envisaged immediate resistant of 1675 yesterday (19 July high), in the wake of a decisive breakout above 100-d/200-d SMAs and downtrend line last week coupled with upticks in indicators. Subsequently, we expect the index to grind higher to the next targets at 1684 (61.8% FR) and 1700 before profit taking activities emerge.

• On the flip side, the ongoing rebound will be disrupted i f the index retraces below the 1666 levels (resistanceturned- support of 200-SMA) again.

Market Strategy

• On the back of stimulus-driven measures by central banks and government, Dow’s rec ord closing overnight, strong rebound in oil prices coupled with recent RM strength, KLCI is likely to advance further to test our next upside targets at 1684-1700. However, we see challenging resistances near 1700 as profit taking activities will cap further run-up as indicators would become toppish.

• Portfolio (FIG 4). We closed our position on SUNWAY (2.7% loss) yesterday amid expiry.

• Stock on radar (separate report). Today, we highlight IFCAMSC (Trading Buy) for a potential symmetrical triangle breakout in the next 2 weeks after undergoing a brief sideways consolidation. Key upside targets are RM0.575-0.63 whilst supports fall on RM0.50-0.51. Cut loss at RM0.49.

Source: Hong Leong Investment Bank Research - 12 Aug 2016