MARKET REVIEW

Despite the recent trade threat from China to potentially retaliate by imposing a 5-25% tariffs on USD60bn US goods, key regional benchmark indices rebounded strongly amid bargain hunting activities; the Shanghai Composite Index and Hang Seng Index rallied 2.74% and 1.54%, respectively.

Tracking the regional gains, coupled with the positive foreign trade inflows of RM233.4m yesterday, sentiment on the local bourse turned positive, with the FBM KLCI rising 0.64%. On the broader market, market breadth was positive with 576 gainers vs 328 losers. Market traded volumes and values were higher at 2.5bn and RM2.33bn, compared to 2.12bn and RM1.71bn, respectively.

Wall Street ended on a positive note as investors shrugged off concerns on trade issues and focused on the stronger-than-expected earnings season. The Dow rose 0.50%, while S&P500 and Nasdaq gained 0.28% and 0.31%, respectively. Both the S&P500 and Nasdaq are just less than one percent away from their all-time-highs.

TECHNICAL OUTLOOK: KLCI

The FBM KLCI experienced a flag pattern breakout above 1,784. However, it is still retesting the SMA200 near the 1,797 level. Trend indicator like MACD is suggesting that the uptrend is intact. Meanwhile, RSI and Stochastic oscillators are still overbought. With the mixed technical readings, we anticipate that the KLCI’s upside will be capped near the 1,800 level.

As investors set aside the trade developments and noticing stronger inflows from foreigners, we may anticipate extended rebound on the broader market. However, cautious sentiments will still prevail ahead amid the uncertain August reporting month. Hence, we opine that the KLCI’s upside will be limited near 1,800.

TECHNICAL OUTLOOK: DOW JONES

The Dow continued to trade higher following the flag formation breakout, coupled with the committed breakout above 25,500. The MACD Indicator remains positive, while both the momentum oscillators (RSI and Stochastic) are on a recovering note. Hence, the next immediate resistance will be located around 26,000. Support will be pegged around 25,500 followed by 25,000.

Although market sentiment remains sturdy as investors focused on solid quarterly earnings, we think the recent upward move may attract profit taking activities, should there be any negative news flows from the trade developments. Meanwhile, the proposed tariffs of 25% on the USD200bn worth of Chinese goods will be on a scheduled hearing during 20-23 Aug.

TECHNICAL TRACKER: CLOSED POSITION

We had squared off our position in 3A (3.1% loss) yesterday amid weakening technicals.

Source: Hong Leong Investment Bank Research - 8 Aug 2018