Market Review

• Overall Asian markets took a dive after the Dow surpassed 22,000 amid profit taking activities as Dollar Index stayed weak near the 92-93 zone. Also, China Caixin PMI was mildly lower in July at 51.5 (vs 51.6 in June) – Shanghai Composite Index fell 0.35%, while Hang Seng Index and Nikkei 225 declined 0.25% respectively.

• The FBM KLCI inched marginally higher towards 1,771.90 pts (+0.07%), while trading interest was noted on technology and ACE market stocks on the local front. However, broader market tone was subdued without any significant catalyst in the market environment. Market breadth stayed negative with decliners led advancers by a ratio of 449-to-346. Market volumes continued to stay below 2.0bn at 1.75bn shares.

• Sentiments on Wall Street were affected by the on-going investigation of Russia interference during the 2016 US presidential election, which capped gains on most of the indexes on the US stock markets; the S&P500 and Nasdaq declined 0.22% and 0.35% respectively. However, the Dow managed to eke out a marginal gain of 0.04%, marking its eighth consecutive day of gains.

Technical View

Trending sideways with mild upward bias view

• The FBM KLCI has seen gradual upward move over the past week and the MACD Line has crossed above zero, while the RSI trended steadily above the 50 level. However, the Stochastics oscillator is slightly overbought, indicating that the upside might be capped around 1,775- 1780 level.

Market Outlook

• In the US, divergence has been spotted between the Dow and S&P500, which we think the Dow's upward trend might not be sustainable. Hence, profit taking activities may curtail the upside momentum over the near term. Also, investors may be monitoring the monthly payroll data for further clues on the health of the economy.

• Meanwhile, stocks on the local front may extend the sluggish trading tone without any fresh leads in the markets and the FBM KLCI is likely to trend sideways with the resistance set along 1,775-1780. However, traders could still focus on technology and ACE market stocks as they were traded actively over the past few days.

• Closed position: We took profit on CCK (4.7% return) yesterday after hitting R1 upside target.

Source: Hong Leong Investment Bank Research - 4 Aug 2017