Market Review

• Following another round of selloffs in the US, where the Dow dropped more than 1,000 pts, Asian equities closed in the negative region led by Shanghai Composite Index, falling more than 4.0% in Friday. Meanwhile, Hang Seng Index and Nikkei 225 declined 3.1% and 2.3%, respectively.

• Similarly, stocks on the local front turned on the profit taking mode and the FBM KLCI fell 1.07%. Again, market breadth was extremely negative with a decliners overwhelmed advancers by a ratio of 9-to-2. Market traded volumes stood at 2.45bn, lower than the 100-day moving average volumes of 2.98bn. Nevertheless, traders were focusing on defensive consumer heavyweights such as Nestle, Dutch Lady and F&N.

• In the US, the selling activities extended at the start of the session at traders were still worried about the higher interest rate environment, but bargain hunting activities emerged and managed to recoup the losses and turn into positive territory. The Dow fluctuated more than 1,000 pts and ended higher by 1.38% on Friday, forming a hammer pattern on the daily chart.

Technical View

Upside likely to be capped along 1,830-1,840

• The FBM KLCI formed another downward gap last Friday and the MACD indicator continues to trend lower. However, we think the short term positive performance on Wall Street may spillover and FBM KLCI could be due for a technical rebound. The resistance will be located around 1,830-1,840, while the support is located around 1,800- 1,810.

Market Outlook

• We think the recent pullback phase could have digested the earlier gains from the Trump rally. With the formation of a hammer candle, it shows that the buying interest may extend further on Wall Street. The Dow may trade higher towards 24,500.

• Meanwhile, on the local front we think the KLCI could trend higher on the back of positive sentiment from US stock markets. Traders may still favour stocks with defensive attributes such as consumer and REITs under this cautious environment. The KLCI upside could be located around 1,840.

Source: Hong Leong Investment Bank Research - 12 Feb 2018