Market Review

• Following the negative performance on the overnight Wall Street, Asian stock markets trended lower on the back of profit taking mode prior to the final US tax reform status, coupled with the softer US dollar, which affected the sentiments on the Japan's exporters. The Nikkei 225 dropped 0.62%, while the Hang Seng Index and Shanghai Composite Index declined 1.09% and 0.80% respectively.

• Meanwhile, stocks on the local front ended slightly lower in tandem with the regional sentiments, coupled with the softer performance from the overnight US. However, selected property and oil and gas stocks such as Sime Property and Lotte Chemical traded on a positive note. Market volumes stood at 2.34bn, worth RM3.51bn. Overall market breadth was negative with 414 gainers vs. 475 losers.

• Wall Street closed on a bullish tone with major indexes charged toward fresh record positions after Congressional Republicans unveiled the final version of the tax bill. The Dow and S&P500 rallied 0.58% and 0.90% respectively, marking new all-time-highs.

Technical View

The steep run-up may look for short term consolidation

• Following the run-up last week, the FBM KLCI managed to retest the SMA200 near the 1,755 level. The MACD Line has crossed above zero, while the RSI and Stochastics are on a recovering trend. We think the KLCI may extend its rebound after a mild consolidation. Support will be set around 1,740. Meanwhile, should there be a breakout above the 1,760 level, next resistance would be envisaged around 1,770.

Market Outlook

• In the US, we opine that the investors may continue to price in the impact of the corporate tax reform into the corporate earnings and the bullish sentiments may still continue for the Dow and S&P500 to challenge the 25,000 and 2,700 levels, respectively.

• Meanwhile, stocks on the local bourse may stay on a mild retracement mode after the steep rally last week. However, we think the downside could be limited amid the current window dressing period. Also, traders could be looking for opportunities within the oversold small caps and lower liners as they may be deemed attractive for a potential technical rebound.

Source: Hong Leong Investment Bank Research - 18 Dec 2017