MARKET REVIEW

Asian markets rose in the early trades amid overnight 0.7% rally in Dow after Trump secured a trade concessions agreement with the European Union. Nevertheless, the gains narrowed as sentiment was dampened by a deepening losses in SHCOMP (-0.7% to 2883) as nagging US China trade threat could get still worse before it gets better, which risks taking the edge off economic growth.

Taking cue from another impressive 0.7% rally in Dow as Trump secured concessions to avert EU-US trade war and positive expectations of stimulus measures by China to spur cooling economy and battered stock market, KLCI inched up 2.5 pts to 1766.2. Despite the headline gains, sentiment was negative with 618 losers vs 335 gainers while daily volume shrank 19% to 3.03bn shares worth RM3.75bn.

US stocks closed mostly lower on Thursday, weighed down by sharp losses in technology shares as Facebook posted its biggest one-day drop ever following disappointing quarterly results. The tech-heavy Nasdaq sank 80 pts or 1% to 7852, but the Dow bucked the trend, rising 113 pts or 0.4% to 25527. Post market, Wall Street breathed a sigh of relief after Amazon’s quarterly results beat estimates.

TECHNICAL OUTLOOK: KLCI

The KLCI extended its positive closing for the 4th consecutive sessions, but we see stiff resistances at 1776 (50% FR) and 1789 (200d SMA) levels. A successful breakout 1789 will spur index higher towards 1800 territory. The MACD Line is hovering above zero, but the MACD Histogram is on a weakening pace. Meanwhile, the slow stochastic oscillators are grossly overbought, suggesting potential retracement ahead. Supports are located around 1750 (10d SMA) and 1742 (50d SMA) levels.

Although overnight positive gains in Dow and a rapidly reduced net outflow by the foreigners to RM35.7m (-68% against 5d average of RM112m) may boost KLCI to retest 1776 levels today, further upside is limited towards 1789 amid stretched technicals and uncertainties ahead of the Aug reporting season.

Closed positions: Yesterday, we took profits on our 3Q18 quarterly stockpicks ie YSPSAH (+12.4% return), FRONTKN (+14.1% gains), PIE (+13.9% return) and SERBADK (+15.1% gains). Concurrently, we also took profits on our Technical Tracker stockpicks i.e SCOMNET (+12.0%).

TECHNICAL OUTLOOK: DOW JONES

The Dow extended its gains for a 3rd straight session to end at 5M high after staging a triangle breakout to test the upper Bollinger band. Despite the positive MACD and RSI indicators, overbought stochastic oscillator and a negative shooting star formation could derail the uptrend in the near term. Stiff resistance levels are set at 25800-26000 while supports fall at 24800-25200.

Ongoing strong 2Q18 reporting season, expectations of a strong 2Q18 GDP release tonight and positive hopes in NAFTA talks with Canada and Mexico after the favourable trade development deals between the US-EU will support Dow’s upside in the near term. However, further strong advance could be limited due to overbought signals.

TECHNICAL TRACKER: LAYHONG

Climactic volumes with bullish Harami signal. We like the synergistic JV between Lay Hong-NH Foods, which allow Lay Hong to expand its market reach by leveraging on NH Foods’ wide geographical network. Also, the rollout of new products will be able to capture new market share. With the climactic volumes accompanied by the bullish Harami candle, we believe the downside risk could be limited. Resistance will be located around RM0.81-0.87. Support will be set around RM0.73-0.745.

Source: Hong Leong Investment Bank Research - 27 Jul 2018