Market review

• Asian markets were mixed, with the NIKKEI 225 dropped 0.6% as export-oriented stocks came under pressure due to stronger Yen. Investors remained uncertain of the upcoming BOJ meeting on 21 Sep, with opposing views on whether the BOJ adds or reins in stimulus. Sentiment was also cautious ahead of Yellen’s speech on Friday to gauge the Fed’s next tightening moves.

• KLCI lost 8 pts after traded within intra-day high of 1690 and a low of 1680, led by selldown in SIME (-34 sen to RM7.80), AXIATA (-12 sen to RM5.66), GENM (-9 sen to RM4.28), ASTRO (-6 sen to RM2.91) and SKPETRO (-2 sen to RM1.58). Market breadth was negative with 263 gainers compared to 579 losers amid lingering jitters over the US interest rate hike and the peak of ongoing Aug reporting season.

• Ahead of the wi dely focus Yellen’s speech on Fri day, the Dow inched up 18 pts after mixed economic data bolstered speculation the Fed will be in no rush to raise interest rates. The dissonance of reports showing a surge in US July new home sales and a slower Aug flash manufacturing PMI brought into question the recent hawkish tone from Fed officials’ speeches. Seasaw pattern ahead

• Profit taking pullback saw KLCI declined to intraday low at 1680 (breaching 22 Aug low of 1682) before inching up to end at 1683 yesterday, forming a spinning top candlestick to signal uncertainty ahead.

• We still expect volatility to prevail given the moderating daily indicators as well as weekly slow stochastic reading. Key supports are 1675 (resistance-turned-support of 19 July high), 1670 (50% FR) and 1665 (200-d SMA). On the flip side, a decisive breakout above 1700 will li ft KLCI towards 1717/1729 (R1/R2) targets.

Market Strategy

• We expect corrective mode to prevail in order to neutralize overbought position. Sentiment may turn more cautious as we embrace a flurry of big caps results during the peak of ongoing Aug reporting season. On the external front, key focus is the global cent ral bankers in Jackson Hole (25-27 Aug), where Janet Yellen may provide insight on the rate outlook, given that more and more Fed officials are supportive for imminent interest rate hike in coming months.

• Stock on radar (Separate report ). We have a Trading Sell on DRBHCOM as the shooting star patterns and grossly overbought daily and weekly indicators may induce further selling pressures and cap upside. Key resistances are RM1.40-1.45 while supports fall on RM1.22-1.30.

Source: Hong Leong Investment Bank Research - 24 Aug 2016