Market review

• With Wall Street trended higher and tested the 20,000 level, Asian key regional indices ended on a positive note as Hang Seng Index and Shanghai Composite Index increased 0.25% and 0.54% respectively – advance of the latter was led by aerospace defense industry.

• On our local stock exchange, after the FBM KLCI retested the 1,675 level, selling pressure emerged and the key index trended into the negative territory. Most of the stocks were in for profit taking mode after the rally last week; market breadth was negative with decliners led advancers by 422-to-375 stocks. Meanwhile, overall traded volumes were above the three-month average volumes of 1.47 bn.

• US equities rejected the 20,000 psychological level and were pushed lower amid weaker crude oil position. Brent crude oil declined nearly three percent amid higher number of rigs drilling at 529 (+4), marking the tenth consecutive week of gains. The Dow slipped 0.38% to 19,887.38 pts.

Technical view

Buying support took a pause amid overbought momentum indicators

• The daily MACD Indicator continued to trend higher above the zero level, but the RSI has retreated after visited the overbought region. Also, the Stochastics oscillator is suggesting that the FBM KLCI is overbought.

Market outlook

• We expect investors to take a cautious stance as the Dow has trended sideways around the 20,000 level and the dollar index is undergoing a consolidation phase. The Dow's upside is likely to be capped ahead of the corporate earnings season; buying support may be minor over the near term.

• Tracking the overnight Dow, coupled with the renewed selling pressure from crude oil prices, we expected market sentiments on Bursa Malaysia to turn weaker; the FBM KLCI may experience further pullback to consolidate the recent gains. We also expect profit taking activities to extend to the broader market as the FBM Small Cap Index traded near the 200-D SMA.

• Closed position. We closed our position on Destini (7% gain) as share prices hit above R1 upside target.

• Trading idea-VIS. We advocate Take Profit as share prices are likely to retrace back by 5.6%-10% to the RM0.40-RM0.42 support zones amid toppish indicators. A decisive violation below RM0.40 will trigger further decline towards RM0.37 (14-w SMA). On the flipside, any rebound will see upside capped at RM0.46-RM0.50 levels

Source: Hong Leong Investment Bank Research - 10 Jan 2017