Market Review

• Key regional indices went into a selling mode after tensions between US-North Korea escalated last week. Most of the investors took the chance to take the profits off the tables and increased exposure within safe haven assets. The Hang Seng Index and Shanghai Index suffered the most by falling 2.04% and 1.59% respectively.

• Following the drastic plunge on Wall Street after the exchange of words between the US and North Korea, stocks on Bursa Malaysia were splashed in the red and the FBM KLCI fell 0.61% to 1,766.96 pts. Market breadth was extremely negative with losers outpacing gainers by a ratio of 5-to-1. Market volumes picked up to 1.64bn shares as investors take the opportunity to take profit and bargain hunt in stocks that were severely oversold.

• Meanwhile, stocks on the US markets ended marginally higher after a sharp fall on Thursday as bargain hunting activities emerged. However, upsides were being capped as geopolitical tensions continue to linger within the market environment contributing to a weekly decline of 1.06% and 1.43% on the Dow and S&P500 respectively.

Technical View

Weekly inverted hammer formed

• The FBM KLCI ended on a negative tone last week, forming a negative candle on the weekly chart. The weekly MACD Histogram has turned red, and the weekly RSI is trending lower. Also, the KLCI has breached below the short term upward trendline, indicating the pullback phase trend may extend this week after a short-lived technical rebound. Resistance will be located around 1,770-1,775, while support will be set around 1,750.

Market Outlook

• We believe that the environment could have stabilized at the moment following a knee-jerk reaction last week and investors may look for opportunity this week on oversold stocks for further technical rebound possibility. The Dow may revisit 22,000. Meanwhile, investors could be focusing on the Fed's meeting minutes that will be released on Wednesday.

• Similarly, on the local front, sentiments might turn marginally positive after the heavy selling activities last week. The FBM KLCI could be due for a technical rebound and might trade towards 1,770 over the near term amid bargain hunting tone from the investors.

• Closed position: Last Friday, we squared off our positions on DAYANG (4.0% loss) due to weakening technicals and DRBHCOM (6.0% loss) amid expiry.

Source: Hong Leong Investment Bank Research - 14 Aug 2017