Market review

• On the last trading day in Aug, most Asian markets ended mixed but NIKKEI 225 gained 1%, as exports-oriented and banks stocks rallied and the yen weakened amid expectations for an increase in U.S. interest rates this year. Investors are watching the US jobs data on 2 Sep closely for clues on whether the global economy can take on higher borrowing costs.

• Ahead of the Hari Merdeka holiday on 31 Aug, KLCI lost 3.5 pts on 30 Aug on weakening RM and oil prices amid concern of the prospect of higher interest hike on 21 Sep FOMC meeting, led by selldown in MAYBANK (-8 sen to RM7.82). GENTING (-20 sen to RM7.80), MAXIS (-5 sen to RM6.28), SKPETRO (-6 sen to RM1.58) and TENAGA (-4 sen to RM14.74). Market breadth was negative with 409 gainers against 419 losers.

• Dow lost 53 pts (recovered from -120 pts intraday) as sentiment remained subdued ahead of the key jobs data report (2 Sep) and a selloff in energy stocks as WTI slumped 3.4% on data showing US stockpiles climbed more than analysts had projected last week. Traders now saw a 59% chance of a rise in US borrowing costs, up from 54% a week earlier.

• Consolidation to prevail

• KLCI was traded in a wide range bound trading band of 12.3 pts on 30 Aug before ending 3.5 pts lower at 1678.1. We reiterate our view that KLCI will remain in consolidation mode unless it can reclaim quickly above the 1686 (10-d SMA) decisively for a resumption of rally towards 1700 and 1717 levels.

• Key supports remain at 1675 (resistance-turned-support of 19 July high) and 1670 (50% FR & support trend line). A breakdown below 1670 will t rigger further selldown towards 1665 (200-d SMA) and 1656 (38.2% FR) levels.

Market Strategy

• KLCI may ease further amid overnight drop in Dow as well as fear of further weakening of RM due to falling oil prices and potential outflow concern as investors bet for greater probability of a 2nd Fed rate hike in Sep.

• Stock on radar. We recommend OCK (Trading Buy) as we expect the stock is ripe for imminent technical rebound following the formation of Tweezers bottoms and a long-legged Doji patterns. A decisive breakout above RM0.815 will spur prices higher towards RM0.86-0.90 levels. Key supports are RM0.765-0.785. Cut loss at RM0.745.

Source: Hong Leong Investment Bank Research - 1 Sep 2016