MARKET REVIEW

Tracking the rising overnight Wall Street performance led by better-than-expected corporate earnings from Alphabet, the Asian stock markets closed mostly higher after Beijing announced that it may take a stronger fiscal policy approach, including corporate tax cuts in view of the recent US-China trade war. The Nikkei 225 and Hang Seng Index rose 0.46% and 0.90%, respectively, while Shanghai Composite Index (-0.04%) ended flattish. On the local front, the FBM KLCI traded marginally higher by 0.05% to settle at 1,763.78 pts. Market breadth was also positive with 543 advancers vs. 386 decliners, accompanied by 3.75bn (worth RM2.70bn). Selected construction (Gamuda and Gabungan AQRS) and O&G (Velesto and Sapura Energy) stocks managed to trade actively for the session. However, the foreign net outflow intensified to RM244.2m vs. RM129.1m on Tuesday.

Wall Street managed to pare down earlier losses and surged strongly at the last hour of trading following the news which reported that the EU has agreed to import more US soybeans, avoiding the potential impending trade war. The Dow and S&P500 increased 0.68% and 0.91%, respectively, while Nasdaq rallied 1.17% to 7932.24 pts (all-time-high).

TECHNICAL OUTLOOK: KLCI

The FBM KLCI extended its positive closing for another session, but it could be hitting the immediate resistance around 1,770. The MACD Line is positively hovering above zero, but the MACD Histogram is on a weakening pace. Both the RSI and Stochastic oscillators are overbought, suggesting that the key index could be poised for a mild retracement. Further resistance will be pegged around 1,790-1,800. Support will be located around 1,740-1,750.

With the stretched rebound recently, coupled with the extended net outflow by the foreigners, we believe the upside could be limited and profit taking activities may emerge over the near term, in line with the overbought momentum oscillators. Hence, we expect the FBM KLCI to cap near the 1,790-1,800 levels.

TECHNICAL OUTLOOK: DOW JONES

The Dow extended its upward momentum after rebounding off the upper band of the symmetrical triangle pattern, targeting the 25,500 level. The MACD Line is hovering positively above zero, but the Stochastic oscillator is overbought. Hence, as both the indic ators a showing mixed signals, we opine that the Dow could turn sideways after hitting the resistance along 25,500. Support will be anchored around 25,000, followed by 24,500.

We believe that the trade developments between the US-EU has turned slightly positive at this stage with the EU agreeing on some terms to import more goods from US could give a boost to positive trading activities. However, upside on the market could be limited as Facebook plunged more than 20% after market hours on the back of weaker earnings.

Source: Hong Leong Investment Bank Research - 26 Jul 2018