MARKET REVIEW

Asian stock markets traded mixed yesterday as China 2Q GDP came in at 6.7%, slightly weaker compared to 1Q GDP of 6.8%. Meanwhile, with the easing trade tensions, Nikkei 225 gained 1.85%, and Hang Seng Index inched marginally higher by 0.03%. Also, the telco equipment market ZTE traded actively higher after the US removed a ban on the company from purchasing technology from US.

Similarly, on the local front, trading sentiment was mixed and the FBM KLCI was traded in the negative territory for most of the trading session before turning positive at the eleventh-hour on the back of last minute buying support. Most of the stocks recovered from an intra-day low, which led to a positive market breadth (424 gainers vs 414 losers) and selected construction related such as Gabungan AQRS, George Kent and Econpile managed to trade actively higher for the day. Meanwhile, market traded volumes were slightly above 2.0bn mark at 2.04bn, but below the 100-day average volumes of 2.52bn.

Despite the S&P500 (-0.10%) and Nasdaq (-0.26%) ended lower, the Dow (+0.18%) closed higher lifted by banking heavyweights such as Bank of America following the release of better than-expected 2Q earnings. Meanwhile, energy shares traded mostly weaker after the sharp drop in crude oil prices.

TECHNICAL OUTLOOK: KLCI

After the FBM KLCI hovered near the 1,660-1,670 support levels over the past two weeks, it managed to rebound, surpassing above 1,700, marking sixth consecutive day of gains. The MACD Indicator is recovering towards zero, while the RSI and Stochastic oscillators are turning positive above 50. Hence, we think the key index may retest the 1,740-1,750, while the support will be set around 1,680-1,700.

On the local front, we think the FBM KLCI may continue its upward move to 1,740-1,750 after the weekly bullish engulfing bar was formed last week. Also, we may anticipate more active trading activities within the construction stocks after the LRT3 to go ahead at a lower cost. However, within the O&G, sentiment may turn weaker after the steep decline in crude oil prices.

TECHNICAL OUTLOOK: DOW JONES

The Dow is approaching the upper band of the symmetrical triangle formation. As most of the technical indicators are healthily recovering into the positive region, we may anticipate the key index to breakout from the triangle formation, targeting the 25,500 level. Support will be located around 24,500.

The investors are focusing on economic data and the upcoming reporting season and trade tensions have taken a back seat for the moment. We believe the Dow could poised for a symmetrical triangle formation breakout, targeting the near term resistance of 25,500. Meanwhile, the heavy selling pressure in crude oil prices could drag sentiment within energy shares.

Source: Hong Leong Investment Bank Research - 17 Jul 2018