Market review

• Asian markets ended mixed as investors remained in a wait-and-see mode to scrutinize economic data and comments from Yellen (26 Aug evening) to assess the prospects for higher U.S. interest rates.

• KLCI ended marginally lower by 1-pt to 1682.1 after fluctuating within 1678.9-1684.3 as RM (vs USD) and oil prices retraced from recent strength coupled with investors’ focus on the peak of the ongoing Aug reporting season. Market breadth was negative with 253 gainers compared to 519 losers.

• Ahead of the key Yellen’s speech on Friday, the Dow lost 66 pts as sentiment was dampened by selloff in biotech and healthcare stocks after Democratic presidential candidate Hillary Clinton criticized the price hike of a lifesaving drug by Mylan “outrageous”. Meanwhile, sentiment was also spooked by the odds of Fed rate hike in September have climbed to 28% from 10% a month ago and bets on a Dec hike have risen to almost 54% from 36% end July. Volatility ahead

• Profit taking pullback saw KLCI declined to intraday low at 1678 before inching up to end at 1682 yesterday, forming a small doji candlestick to signal uncertainty ahead. We still expect volatility to prevail given the weakening 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 ongoing consolidation mode to prevail ahead of Yellen’s speech as she may provide insight on the rate outlook, given that more and more Fed officials are supportive for imminent interest rate hike in coming months. On the domestic front, attention is on the peak of the Aug reporting season as we embrace a flurry of big caps results that could trigger volatility in a lackluster market.

• Portfolio (FIG5). We closed our position on SCABLE (3.8% loss) yesterday after delivering weak 2Q16 results.

Source: Hong Leong Investment Bank Research - 25 Aug 2016