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HLBank Research Highlights

Author: HLInvest   |   Latest post: Fri, 19 Jul 2019, 9:05 AM

 

Traders Brief - Range Bound Pattern Ahead of the Fed Meeting

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MARKET REVIEW

Asian markets ended lower last Friday in wake of fading hopes for a US-China trade deal at the 28-29 June G20 summit while a warning from Broadcom of a broad weakening in global demand weighed on chipmakers amid heightened US-China trade angst. Sentiment was also dampened by the falls on Shanghai (-1%) and Hang Seng (-0.7%) markets following a massive rally in in Hong Kong due to the China-backed extradition plan. Meanwhile, protesters in Hong Kong marched again yesterday in a fresh mass rally to demand the city’s top official step down after she suspended but did not withdraw controversial legislation on Saturday.

Despite registering a robust 73% surge in 1Q19 approved FDI of RM29.3bn, KLCI lost 5.1 pts at 1638.6, tracking lower regional markets and a resumption of selling pressure in blue chips such as PMETAL (-8 sen to RM4.29), IOICORP (-7 sen to RM4.17), PBBANK (-30 sen to RM23.12), TENAGA (-14 sen to RM12.18) and PETGAS (-16 sen to RM17.60). Trading volume and value decreased 14% and 16% to 1.75bn shares worth RM1.67bn, respectively.

The Dow eased 17 pts at 26089 last Friday as investors were cautious going into 18-19 June FOMC meeting while a warning from Broadcom of a broad weakening in global demand weighed on chipmakers and the Philadelphia Semiconductor index tumbled 2.6%. The central bank is not expected to make any policy changes, but investors will look for clues about potential rate cuts later this year, given escalating US-China trade tensions and recent bouts of softening global economic data.

TECHNICAL OUTLOOK: KLCI

Following the 5.4% relief rally from 1572 (14 May) to 1657 (11 June), KLCI declined 5.1 pts last Friday and 11.3 pts WoW at 1638.6. This week, in wake of the prevailing uncertainties over the external and internal headwinds, KLCI is expected to lock in a range-bound trading mode amid weakening technical indicators. Resistance is pegged around 1657-1670 zones while support will be set around 1630 followed by 1615 levels.

The local market should stay in range bound consolidation mode this week, given external concerns dominated by US-China trade tensions and the monetary guidance of FOMC meeting this week in light of recent market expectations that the Fed could cut interest rates as much as three times this year.

TECHNICAL OUTLOOK: DOW JONES

After the formation of spinning top pattern on 3 June after hitting a low of 24680, the Dow staged a 6.3% relief rally to a high of 26248 (11 June) before easing 17 pts last Friday at 26089. WoW, the Dow jumped 106 pts to record its 2nd straight gains. On the back of overbought slow stochastic and a Doji pattern last Friday, we expect the Dow to trend in range bound mode. Stiff resistances are situated at 26200-26500 while supports fall on 25700-26000 territory.

In the US, traders will be monitoring the FOMC meeting (18-19 June) to understand the interest rate outlook moving forward. In addition, another major event that investors will be watching out is the G20 summit (28-29 June), where hopes for a trade deal to be struck between the US and China is diminishing. Should any negative surprises surface such as interest rate hike or prolong trade war on the FOMC or G20 summit, respectively, it may impact the stock markets negatively.

CLOSED POSITIONS

We had squared off our positions on GENM (5.20% gain), REVENUE (6.4% gain) and INTA (5.3% gain) after hitting our R1 upside targets last Friday.

TECHNICAL TRACKER: KRONO

Anticipating strong growth with the recent acquisition. Krono is involved in providing on site and off-site enterprise data management (EDM) and data storage solutions to Asian businesses and has been growing in organically by acquiring Quantum Storage Hong Kong and India in FY18, contributing towards stronger 1Q19 results. Moreover, it has completed the recent acquisition of Sandz Solution, which came with a profit warrant of USD1.5m for FY19, hence the growth momentum should sustain. Technically, the stock is forming a support around RM0.52 and could be poised for a trendline breakout above RM0.565 to retest RM0.61-0.63. Cut loss at RM0.52.

Source: Hong Leong Investment Bank Research - 17 Jun 2019

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