Market Review

• Despite the strong rebound on Wall Street, Asian key benchmark indices gave up earlier session’s gains as investors stayed defensive after the intensified volatility, which triggered most of the panic selling. The Nikkei 225 0.16%, while Hang Seng Index (-0.89%) and Shanghai Composite Index (-1.81%) ended lower.

• Following the panic selling where the FBM KLCI hit the 1,800 psychological, the technical rebound extended towards 1,840, as expected. However, throughout the session, the emergence of profit taking activities has slowed down the pace of the upward momentum on selected small caps and lower liners.

• Wall Street traded higher at the start of the session but succumbed to profit taking activities within the energy and technology sectors; energy stocks were affected by the softer crude oil prices following the increase in crude oil output. Also, the US 10-year yield rose more than 1% towards 2.84%, which refrain investors from exposing more into the stockmarkets - the Dow and S&P500 slipped 0.08% and 0.50% respectively.

Technical View

Gap covered after a strong jump in KLCI

• The FBM KLCI rallied towards 1,840, covering the gap earlier. The MACD Line is still below the Signal Line, but the RSI and Stochastics momentum oscillators hooked upwards on the back of the strong jump in key index. However, with the mixed signals on the technical indicators, we think KLCI’s upside could be limited around 1,850, while the support will be anchored at 1,830.

Market Outlook

• With the cautious trading yesterday, we believe traders need to digest the recent technical rebound gains. Hence, Wall Street may consolidate over the near term. The Dow's upside is likely to be capped along 25,000, while the support will be located around 24,000.

• Meanwhile, on the local bourse, stocks may succumbed to further profit taking activities after the strong rebound as traders would turn defensive after the heightened volatility trade earlier this week. The FBM KLCI is likely to consolidate within the band of 1,830-1,850.

• Trading Buy – CCMDBIO. CCMDBIO is a halal pharmaceutical manufacturer and a key regional player that develops, manufactures and markets generic and Over-The-Counter (OTC) pharmaceutical products. Based on consensus, CCMDBIO is expected to grow at 8% EPS CAGR for FY17-19, driven by its capacity expansion, sustained demand for pharmaceuticals from both the government and private sector as well as export markets. We see limited downside risks due to its earnings resilience and signs of bottoming up signals, following the formation of a hammer candlestick.

Source: Hong Leong Investment Bank Research - 8 Feb 2018