Market review

• On the back of record highs closing in the Dow, S&P and Nasdaq, Asian markets rose in the early sessions as the resurgence of commodities amid prospects of further stimulus from China, Japan and EU coupled with trimming bets that the Fed will raise interest rates this year. However, profit taking pullback ahead of key US Fed official speeches in the evening saw most markets ended mixed.

• Taking cue from record close in Dow, KLCI climbed 9.6 pts to close at our envisaged target near 1700, recorded its 5th consecutive advance and also the 8th gains in last 9 sessions, boosted by recent rebound in the “Twin” crude oil and palm oil prices coupled with RM strength.

• The Dow (-84 pts to 18552) fell from record highs overnight following hawkish comments by New York Fed President William Dudley (voting member) and Atlanta Fed chief Dennis Lockhart (non-voting member). The 10- year US gilt rose 0.02% to 1.57 as the probability of a rate increase by end of 2016 edged up to 52% from 45% last week.

Technical Insights

• Index may consolidate near 1700

• After testing our 1700 target yesterday, KLCI daily and weekly slow stochastic indicators have turned increasingly overbought, which could signal potential profit taking correction in the coming days. Key supports are 1684 (61.8%) and 1675 (resistance-turned-support of 19 July high).

• However, given the bullish weekly MACD and RSI indicators, any pullback should be well-absorbed and we expect the index to break 1700 decisively after a brief consolidation to test 1716 (100-w SMA), 1729 (YTD high) and 1739 (LT objective) in the long term.

Market Strategy

• The overnight fall on Dow and hawkish comments by Fed officials coupled with toppish KLCI daily and weekly slow stochastic indicators may see Bursa Malaysia to engage in short term profit taking consolidation.

• However, any pullback will be well absorbed in anticipation of more stimulus-driven measures by global key central banks and government, the return of higher yield seeking funds into emerging markets and rebound in the “Twin” crude oil and palm oil prices coupled with stabilizing Ringgit.

• Stock on radar (separate report). Today, we highlight WASEONG (Trading Buy) for a potential cup and handle breakout. Key upside targets are RM0.905-0.975 whilst supports fall on RM0.825-0.84. Cut loss at RM0.81.

Source: Hong Leong Investment Bank Research - 17 Aug 2016