MARKET REVIEW

Asia markets traded mostly higher, underscored by a 1.85% relief rally in SHCOMP to 2794 (after sliding 22% from 52-wk high of 3587). Sentiment was cushioned by earnings-led advance in Dow and speculations that China government will announce stimulus measures to restore confidence in the battered stock market and cooling economy.

Tracking higher regional markets, KLCI rose as much as 6.6 pts to 1811.3 but profit taking erased the early gains to a mere 0.22 pts at 1805. Trading volume decreased 16.6% to 2.31bn, valued at RM2.29bn while market breadth also turned more cautious with Gainers/Losers ratio reduced to 1.11x from 1.83x previously.

Dow recorded a 2nd straight of decline (-75 pts to 25509) on profit taking as weak energy and industrial shares weighed while the Nasdaq (+3.5 pts to 7891) bucked the trend to rise for an eighth consecutive sessions.

TECHNICAL OUTLOOK : KLCI

We are watchful on Bursa Malaysia as the benchmark KLCI had been enjoying a bullish rally of 154 pts or 9.3% from post GE14 low of 1657 (28 June) to a high of 1811 before ending at 1804 yesterday, without any meaningful consolidations during this period.

Given the formation of a small inverted hammer and steeply overbought technical readings, we do not discount a possibility of seeing mild pullback towards 1790 (200d SMA) and 1785 (10d SMA) before staging another upleg towards 1846 level (pre-GE14 closing).

As long as the 1785-1790 supports are not violated, we remain optimistic that KLCI could still launch another rally towards 1846 zones (8 May or pre-GE14 closing) in the medium to long term, supported by the bullish weekly indicators and a resumption in foreign inflows. Nevertheless, the relief rally from 1657 could be disrupted temporary due to profit taking consolidation amid nagging worries by US-China tit-for-tat trade war and ongoing Aug reporting season.

TECHNICAL OUTLOOK: DOW JONES

Review: After rebounding strongly above the downtrend line breakout, the Dow could be heading towards stiff resistances near 25700-26000 territory, reflected by the signs of weakness in technical readings. Remain positive unless mid BB support near 25300 is violated decisively.

We believe that the trade developments between the US-China have turned uglier lately with the latest rounds of tit-for-tat tariffs, ahead of the next critical scheduled hearings of the proposed 25% charges on the USD200bn worth of Chinese goods on 20-23 Aug. Hence, we see more consolidation along 25000-25300 after the ongoing robust 2Q18 reporting season take a backseat.

Source: Hong Leong Investment Bank Research - 10 Aug 2018