Market Review

• Asia bourses were higher in the early sessions, aided by the buoyant Dow’s 322 pts rally. However, profit taking reduced early gains, led by a 105-pt or 0.4% decline in NIKKEI 225 after hitting 26-year high at 26084. Meanwhile, the SHCOMP and HSI rose 0.9% and 0.4%, respectively in anticipation of a positive China 4Q17 GDP. China data released after the market close, showing the economy grew 6.9% in 2017, topped the official target of around 6.5%, confounding expectations among economists and policy makers that Beijing's efforts to cut corporate indebtedness, cool the property market and curb pollution would slow growth.

• Bucking bullish Wall St performance, KLCI lost 7 pts or 0.4% to end near day low at 1821, led by selldown in GENM (-21 sen to RM5.36), PETGAS (-62 sen to RM17.32), AMMB (-13 sen to RM4.62), HLBANK (-28 sen to RM17.52) and TENAGA (-22 sen to RM15.60). Meanwhile, strong profit-taking amid heavy settlements from recent active trade on small caps and ACE counters weighted down the broader market with 274 gainers against 764 losers, as the FBM SCAP and FBMACE tumbled 1.1% and 1.8%, respectively.

• The Dow slipped overngiht, pressured by strong profit taking after surging 322 pts on Wednesday. Sentiment was also dampened by worries over the possibility of a partial government shutdown as lawmakers are working to carve out a deal to avoid a looming shutdown for Saturday. Finally, the Dow slid 98 pts or 0.4% to 26018, recovering from intraday low of 25947 or 168 pts loss.

Technical View

Mild signs of weakening

• KLCI experienced a healthy profit-taking yesterday to neutralize recent overbought momentum but the broader market undertone has tuned mildly cautious as the index has clsoed below 10d SMA (1824 now). The next key support is 1810 (23.6% FR). A breakdown below this level will derail this bull run and send the index sliding lower towards 1790 zones. Conversely, a swift rebound above 1824 would maintain a positive upward momentum to retest our envisaged 1840-1850 targets.

Market Outlook

• Based on the market sentiment, we think investors may continue to price in future earnings benefiting from the recent corporate tax reform into the stock markets. Hence, the Dow may sustain its upward momentum moving forward but expect more interim consolidations amid toppish indicators. Key resistances are 26.5k while supports fall on 25.2-25.5k.

• On the back of softer market undertone, mainly due to heavy settlements and toppish techicals, KLCI could engage in a brief near term consolidation before resuming its uptrend later, given the firm Ringgit and crude oil prices, healthy macro developments and the resumption of foreign buying supports .

• Closed position: Yesterday, we squared off our position in PRESBHD (1Q18 stock pick) at RM1.83 (R2 upside), generating a return of 15.1%. Concurrently, we phased out DNEX (1Q18 stock pick; 12.8% loss) and MMODE (Trading idea; 7.3% loss) after hitting the cut loss levels.

Source: Hong Leong Investment Bank Research - 19 Jan 2018