Market review

• After plunging 2.3% last week, the MSCI Asia Pac index rebounded for a 3rd day with a 0.2% gain to 138.7 ahead of the widely focused BOJ (21 Sep) and Fed (22 Sep) policy meetings. Investors were split over what action the BOJ will undertake while bets on a potential rate hike from the Fed remain ~22% despite a higher-than-expected US inflation data last Friday.

• After tumbling 39.7 pts in five days, KLCI staged a 4.1-pt technical rebound to 1655.8, spurred by bargain hunting on AXIATA (+12 sen to RM5.39), PCHEM (+10 sen to RM6.60), SIME (+9 sen to RM7.74), HLFG (+34 sen to RM15.98) and GENTING (+9 sen to RM7.90). Despite the headline gains, market breadth was negative with 344 gainers as compared to 418 losers.

• The Dow soared as much as 107 pts in the early session, lifted by a rebound in oil prices ahead of a possible OPEC meeting next week and a patchy Aug housing starts which reduced the probability of a rate hike tomorrow. However, the gains were slashed to 10 pts as skittishness returned ahead of the BOJ and FOMC policy decisions.

Technical view

• Oversold with key support near 1640

• Following a 4.1-pt relief rebound and a hammer candlestick formation yesterday, KLCI immediate outlook has marginally improved, supported by upticks in indicators. Although volatility will prevail, the index is likely to test 1664 (support-turned-resistance) in the near term. A strong close above 1664 will spur index higher towards 1670-1678 levels next. On the flip side, a decisive fall below 1640 will witness KLCI to correct further towards 1611-1622 zones.

Market Strategy

• We expect volatility to remain in the wake of lukewarm sentiment amid the volatile oil prices and Ringgit coupled with uncertainties ahead of the highly anticipated BOJ policy outcome today. However, we expect market to stabilise further amid clarity from the FOMC policy statement (to be released by 3am on 22 Sep).

• Stock on radar. We recommend ARMADA (Trading Buy) as we believe the stock will witness potential relief rally after tumbling 15.5% mom amid a spinning top formation. A decisive breakout above RM0.745 will spur prices higher towards RM0.77-0.84 zones. On the flip side, key supports are RM0.695 and RM0.665. Cut loss at RM0.655.

Source: Hong Leong Investment Bank Research - 21 Sep 2016