MARKET REVIEW

Asian bourses struggled to hold earlier gains made on the back of strong US economy and corporate earnings. However, trade war jitters and recent softness in Chinese data rattled SHCOMP (-0.53% to 2772, its 5th consecutive loss) and Yuan (weakened 0.9% to 52 week low at 6.779/US$), which subsequently undermined the rest of the regional markets performance.

Bucking the tepid regional markets, KLCI jumped as much as 11 pts intraday to 1764.2 before narrowing the gains to 6.2 pts at 1759.2, recording its 9th winning streak. Trading volumes and value soared 33% and 40% to 3.49bn shares worth RM3.03bn respectively, supported by bullish market breadth with 640 gainers vs 323 losers.

After a 5-day rally, the Dow fell 135 pts to 25065, led by Travelers Cos. and American Express amid lukewarm results. Sentiment was also dampened by Trump’s comment that he was not thrilled that the Fed was hiking interest rates, pressuring on financial stocks and trespassing on Fed’s Independence. Meanwhile, worries about a heightened trade war with EU also weighed on sentiment after Trump’s threatened tremendous retribution against the EU should the meeting next week doesn’t yield a fair auto trade deal.

TECHNICAL OUTLOOK: KLCI

Following the bullish breakout above multiple key SMAs and supported by the up-trending MACD/RSI indicators, KLCI could still launch its eventual move towards 1776 (50% FR) levels. Nevertheless, the current positive market breadth and strong buying momentum must prevail to sustain further advance to the next formidable resistance at 1789 (200d SMA).

On the flipside, steeply overbought stochastic reading and a small inverted hammer pattern yesterday could trigger imminent profit taking pullback towards 1748 (38.2% FR) territory. Lower supports are 1713 (23.6% FR) and 1700 psychological zones.

Positive expectations of Economic Affairs Minister’s visit to Singapore (end July) and PM’s China visit (mid Aug) could provide further rerating catalysts to our market in the mid to long term, supported by bullish weekly indicators. Nevertheless, the overnight retreat in Dow and a resumption of foreign selling yesterday amounted to RM90m (after a surprise +RM70m on 18 July) could trigger a long overdue pullback, given the deeply overbought slow stochastic reading (after a 6.2% relief rally from a low of 1657 on 28 June) and ahead of the Aug reporting season.

TECHNICAL OUTLOOK: DOW JONES

Despite recent bullish symmetrical triangle breakout, the Dow failed to advance further but retreated on profit taking, with technical oscillators starting to hook down. Hence, near term outlook has turned slightly negative with key retracement supports at 24600-24800 zones. Meanwhile, key resistances remain at 25500-25800.

On Wall Street, we believe the 24600-24800 supports will sustain on the back of ongoing strong reporting seasons, coupled with the upbeat economic picture. Nevertheless, market may turn choppy again unless upcoming trade discussions between the US and its major trading partners are showing significant progress prior to the midterm congressional elections in November.

Source: Hong Leong Investment Bank Research - 26 Jul 2018