Market review

• Regional key benchmark indices took a pause as investors turned cautious ahead of Janet Yellen’s testimony, coupled with the weaker dollar position following the resignation of the U.S. national security adviser. The Nikkei 225 fell 1.13% and Kospi slipped 0.20%, while Hang Seng Index and Shanghai Composite Index ended flattish for the session.

• Shares on Bursa Malaysia snapped a two-day winning streak prior to Janet Yellen’s speech as profit taking activities emerged among selected index heavyweights such as Tenaga (-14.0 sen) and Genting (-10.0 sen) after the recent rally. On the broader market, there were 470 decliners, 387 gainers, while 387 traded unchanged.

• However, Wall Street trended towards another record position led by banking stocks amid Yellen's hawkish comments on interest rates outlook which strengthened the U.S. Dollar. The Dow and S&P500 closed positively at 20,504.41 pts (+0.45%) and 2,337.58 pts (+0.40%) respectively.

Technical view

KLCI short term uptrend intact, but overbought

• The MACD Line is hovering positively above zero, while the MACD Histogram extended another green bar. However, both the RSI and Stochastics oscillators are suggesting that the key index is overbought. The FBM KLCI’s resistance is envisaged around 1,730.

Market outlook

• As Janet Yellen reiterates her views on the pace on interest rate hikes, investors are likely to extend their optimism in the US stocks. Also, with the potential economic agenda which will be revealed by Donald Trump, sentiments will maintain its positive attitude.

• On the local bourse, while we expect the tone to remain positive but cautious ahead of further reveal of Trump policies. Cautious sentiment may escalate if the FBM KLCI heads towards the overbought region around the 1,720-1,730 levels, which we anticipate traders will look for opportunities to take profit. Nevertheless, short term trading interest remains intact among small caps and lower liners within the broader market.

• Trading Buy-HEVEA. Hevea manufactures and exports particleboard and ready-to-assemble (RTA) furniture. The stock is one of the major beneficiaries of US$ strength as over 90% of its revenues are US$-based while its cost is RM-based. Technically, the “Flag” pattern formation should augur well for further advance in the short term. A decisive breakout above RM1.52 will kick-start further rally towards the RM1.58-RM1.65 zones. Key supports are RM1.39-RM1.43. Cut loss at RM1.37.

Source: Hong Leong Investment Bank Research - 15 Feb 2017