Market Review

• The Nikkei 225 jumped 0.5% to record its 16th straight day after Abe's ruling coalition won a two-thirds majority in the Lower House on 22 Oct. Meanwhile, following the conclusion of China's 19th Party Congress on Tuesday, the rest of Asia treaded water after Wall St lost steam overnight and investors were awaiting the ECB's upcoming policy meeting on 26 Oct and news on the next head of the Fed.

• Bogged down by persistent selling pressures on heavyweights, KLCI slid 5.3 pts to 1736.1, recording its 4th losses in five sessions amid cautious undertone as investors await Budget 2018 proposals on Friday and Nov reporting season coupled with speculation of the timing of the upcoming GE14. Market breadth was bearish as losers edged gainers 599 to 276 on total turnover of 2.48bn shares valued at RM2.13bn against Monday’s 2.72bn shares worth RM1.95bn.

• Boosted by stronger-than-expected results and forecasts from companies including 3M and Caterpillar, the Dow rallied 168 points or 0.72% to end at 23442 (intraday high 23485), marking its 54th record close of 2017. Sentiment was also fueled by optimism of tax overhaul plans and expectations that President Donald Trump will announce a new Federal Reserve boss before he starts a trip to Asia on 3 Nov.

Technical View

Cautious undertone ahead Budget 2018

• We remain bearish for the immediate term as long as the KLCI stays below 1745 or the 200-d SMA (support-turned resistance), which is compounded by the bearish MACD and RSI. Nevertheless, in anticipation of an election friendly Budget 2018 and steeply oversold slow stochastic indicator, KLCI should grease a test of stronger support from 1727 (38.2% FR), and subsequently 1706 (50% FR). Conversely, the technical rebound targets are situated near 1745-1763 levels.

Market Outlook

• With investors priced in most of the upbeat earnings from the ongoing US 3Q17 corporate results, the next major event will be the corporate tax reform details and the next Fed chief. Traders should also take note of the steeply overbought signals on the Dow, which may contribute to a potential mild correction in the short term.

• On the back of overnight rally in Dow, KLCI could stage a mild technical rebound today but mid-to-large cap stocks may still consolidate sideways ahead of the Budget 2018 details, while rotational playas in the ACE companies and penny stocks would remain darlings among traders' radar. Meanwhile, trading focus could linger around O&G (our 4Q17 retail picks are Dayang & T7 Global) amid the overnight 1.7% rally in Brent crude oil.

Source: Hong Leong Investment Bank Research - 25 Oct 2017