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HLBank Research Highlights

Author: HLInvest   |   Latest post: Fri, 10 Jul 2020, 9:21 AM

 

Traders Brief - Likely to Stay in a Consolidation Phase

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MARKET REVIEW

Asia stock markets ended on a mixed note as the trade discussions between the US and China could be hitting some roadblocks since Trump’s administration has increased scrutiny of Chinese telecom companies. Over the weekend, Google has stopped selected services with Huawei. The Shanghai Composite Index and Hang Seng Index declined 0.41% and 0.57%, respectively, but Nikkei 225 added 0.24% amid better-than-expected 1Q19 GDP.

Nevertheless, the KLCI was traded higher last Friday but accompanied by softer overall market traded volumes (1.91bn, worth RM1.46bn) prior to the long weekend. Market breadth however was negative with 408 decliners vs. 342 advancers. Selected O&G counters such as Hibiscus, Bukit Armada and Dialog were traded positively for the session. Meanwhile, Bursa Exchange was closed on Monday for replacement holiday.

Wall Street closed lower led by technology stocks following the White House’s restrictions on Huawei, where several chipmakers such as Qualcomm, Intel and Broadcom were suspending their businesses with Huawei until further notice, which led to the tech-heavy Nasdaq declined by 1.46%. Meanwhile, the Dow and S&P500 dropped 0.33% and 0.67%, respectively.

TECHNICAL OUTLOOK: KLCI

The FBM KLCI ended slightly higher last Friday and it has formed a flag formation over the past three trading days. The MACD Histogram has recovered mildly, but the MACD Line is still hovering below zero. Although both the RSI and Stochastic oscillators have recovered above the oversold region, but they are both hovering below 50. Hence, the KLCI may consolidate further before forming a breakout above 1,612. Resistance will be pegged around 1,630-1,540, while support will be located around 1,580-1,600.

With the negative sentiment abroad following the Huawei restrictions episode, we may anticipate softer trading tone on the local front, especially on technology stocks. However, as the OPEC signalled their intention to limit oil supplies for the rest of the year and lifted the crude oil prices and maintained above USD70 level, we believe traders may focus on O&G stocks for a short term trade.

TECHNICAL OUTLOOK: DOW JONES

The Dow is still hovering above the SMA200 level following the recent pullback. The MACD indicator has turned flattish below zero level, while both the RSI and Stochastic oscillators are threading below 50; suggesting that the short term momentum is weakening. Hence, the upside is likely to be limited along 26,000, while support is set along 25,429 (SMA200) and 25,000.

In the US, the trade disputes situation could have worsened after White House’s restrictions on Huawei, despite President Trump commented last week that the results of trade discussions will be known within the next 3-4 weeks and we expect the market participants to stay on the side lines. Hence, market sentiment tone may extend its consolidation phase over the near term with the Dow’s upside capped along 26,000.

Source: Hong Leong Investment Bank Research - 21 May 2019

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