Market review

• The MSCI Asia Pacific Index (MXAP) rose for the 3rd day in a row (+0.16-pt to 140.18), boosted by a rally in energy related stocks amid surging oil prices and resilient China 3Q16 GDP. Sentiment was also helped by expectations that a more market-friendly Hillary Clinton (vs Trump) will win the US presidential election on 8 Nov.

• Despite higher regional markets and oil prices, KLCI eased 1.1 pts to 1667.2 after hovering in narrow range within 1667-1671.5 intraday, ahead of the widely anticipated Budget 2017 today. Market breadth was negative with 342 gainers as compared to 417 losers.

• The Dow eased 40 pts after recording 2-day gain as sentiment was dented by a sharp profit taking pullback in oil prices. Overall, market undertone remains cautious as investors grappled with a mixed bag of economic data, ongoing earnings results, prospects of a rate increase by the Fed and tumult wrought by the U.S. presidential election.

Technical view

Sideways pattern to prevail

• Technically, only a decisive break above immediate resistance of 1675 (19 July high) will trigger a resumption of rally to retest the 1684 (61.8% FR) and 1700 psychological barriers. Failure to do so will witness KLCI to engage in sideways consolidation mode with key supports at 1657 (38.2% FR) and 1645 (20 Sep low).

Market outlook

• On the back of overnight fall in Wall St and sharp oil price pullback coupled with the tabling of Budget 2017 today, market activity is likely to tone down and KLCI is expected to trade sideways within a narrow range within 1664-1670 territory.

• Trading idea (separate report). From predominatly ICT based, DNEX (at 8.5x FY17 P/E with 34% FY15-18 earnings CAGR) has diversified into energy-related business as its 2nd core earnings stream. The stock is ripe for imminent technical rebound following the formation of Tweezers bottom and grossly oversold slow stochastic indicator. A decisive breakout above RM0.29 will spur prices higher towards RM0.30-0.34 in the medium to long term. Key supports are RM0.265-0.275. Cut loss at RM0.255.

Source: Hong Leong Investment Bank Research - 21 Oct 2016