Market review

• Asian key benchmark indices lost momentum after the mixed trading sentiments on the overnight Wall Street. The Shanghai Composite Index and Hang Seng Index fell 0.31% and 0.36%, while the Nikkei 225 slipped 0.04%.

• Market sentiments were weaker yesterday as selling pressure set in after the FBM KLCI hit an intra-day high around the 1,710 level. The key index closed in the negative territory at 1,704.48 pts (-0.21%) led by Axiata (-5.6%) following the release of weaker 4Q results. Market breadth was negative with decliners overwhelmed advancers with a ratio of 555-to-328 stock. Meanwhile, overall market traded volumes stood at 2.79bn.

• US equities were mixed as upside momentum was being capped by the weaker-than-expected initial jobless claims, which increased by 6,000 at 244,000 last week. However, energy stocks were traded actively higher on the back of recovering crude oil prices. The Dow managed to end higher by 0.14%, recording the tenth day of winning streaks. S&P500 closed flattish and Nasdaq fell 0.43%. Meanwhile, gold prices experienced a breakout above US$1,241, revisiting the SMA200 of US$1,261.

Technical view

KLCI violated below EMA5 and MACD Indicator formed a dead cross

• After revisiting the 1,720 level on Tuesday, selling pressure continued and KLCI violated below the EMA5 level. Also, MACD Indicator suggests that near term momentum is turning negative. With the overbought Stochastics oscillator, we expect the FBM KLCI to extend the near term pullback towards the 1,700 level, followed by 1,660. Meanwhile, upside resistance will be pegged around 1,720-1,730.

Market outlook

• The aggressive buying spree has certainly taken a backseat as the Dow is having an overbought situation. Investors are cherry picking the stocks within the commodities sector such as crude oil and gold. Hence, we opine that the upside of the Dow might be capped along the 21,000 level.

• On the local front, following the violation of the FBM KLCI below the EMA5, the key index might experience a short term pullback towards the immediate support of 1,700. Also, FBM Small Cap stocks are looking toppish near the 16,200 level. Nevertheless, buying interest could be emerging within the O&G stocks amid recovering crude oil prices

Source: Hong Leong Investment Bank Research - 24 Feb 2017