Market review

• Asian key regional indices extended another round of mixed amid light trading activities – the Shanghai Composite Index and Kospi Index declined 0.40% and 0.87% respectively, while Hang Seng Index jumped 0.83% and MSCI Asia Pac added 0.24%.

• Window dressing mood extended on the local front as the FBM KLCI surged 10.62 pts to 1,630.30 pts led by MAYBANK (+20.0 sen) and HAPSENG (+16.0 sen) – the latter trended higher after it rose 52.0 sen on Tuesday. Market breadth has turned positive with advancers outpaced decliners by 416-to-287 stocks. Also, trading interest was seen among some O&G stocks like KNM (+1.0 sen) and HIBISCS (+2.5 sen) on the back of steady crude oil prices.

• U.S. stock markets headed for the biggest drop over the past two months on thin trading as pending home sales fell 2.5% to 107.3 in November. The Dow slipped 111.36 pts to 19,833.68 pts. However, US dollar index traded slightly higher at 103.30 pts (+0.28 pts), while Brent crude oil gapped above the US$56 level.

Technical view

Revisiting next resistance of 1,640

• While the daily MACD Line is located below zero level, the MACD Histogram has turned green. Meanwhile, the RSI has hooked up and the Stochastics oscillator has formed a cross signal within the oversold region – suggesting short term is turning positive.

Market outlook

• As selling interest emerged after the Dow retested the 20,000 psychological level over the past two weeks, we may expect short term consolidation to digest some gains after the Dow has rallied seven weeks consecutively after the U.S. election.

• Despite the rising buying activities among selected index heavyweights and small cap stocks on the back of window dressing activities, traders may still deploy selling-into strength strategy to lock in profits over the near term, which may curtail FBM KLCI’s upside around the 1,640 level.

• Trading Buy: Reach Energy. On the back of recovery in oil prices, the formation of weekly Tweezers bottom and bottoming up indicators, Reach (now a full-fledged O&G exploration and production company) prices are likely to stage a downtrend resistance breakout soon. A decisive breakout above RM0.62 will spur prices to advance towards the RM0.64-RM0.71 zone. Major supports are located near RM0.595-RM0.60. Cut loss will be set at RM0.585 (below RM0.59 placement price).

Source: Hong Leong Investment Bank Research - 29 Dec 2016