Market review

• Asian markets ended in the red while save havens (i.e. gold and Treasuries) strengthened as mounting geopolitical risks in Syria and North Korea sparked riskoff sentiment. The losses were also attributed to the uncertainties from the upcoming 1st round of French presidential election on 23 Apr (amid concern over Frexit), the prospect of an unwinding of Fed‘s giant balance sheet and Trump’s unpredictable foreign policy.
• Tracking negative regional bourses, KLCI extended its losses for a 2 nd day with a 3.7-pt decline to end at 1,735.8 after hovering within 1740 and 1733 territory. Market breadth was negative with 358 gainers as compared to 569 losers.
• Wall St mitigated losses to close fractionally lower ahead of the start of US 1Q17 reporting season as investors remained cautious over ratcheting geopolitical tensions as the US has taken a hard line on Syria at a G-7 meeting while North Korea warned of a nuclear strike if provoked. Save havens rallied while the Dow eased 6.7 pts (from -146 pts intraday) to end at 20,651.

Technical view

Increased volatility after falling below support trend line with near term supports at 1,720-1,726

• KLCI outlook has turned mildly negative following a breakdown below support trendline, supported by weakening MACD and RSI indicators. A decisive fall below 1,735 (or 30-d SMA) would suggest a corrective move towards 1,720 (50-d SAM) and 1,705 (38.2% FR) levels. We see 1,700-1,705 to act as strong support levels amid grossly oversold slow stochastic indicator. Meanwhile, stiff resistances are situated at 1743 (10-d SMA) and 1759 (YTD high on 29 Mar).

Market outlook

The Dow may lock in a range bound consolidation mode within 20,400 to 21,000 as investors refocus on the 1Q17 earnings reporting season and geopolitical issues, in addition to earlier dampeners such as the Fed scaling back its quantitative easing and slow kick-off in the US fiscal spending and tax reforms. Technically, there are early signs of mild recovery, accompanied by the Dragonfly Doji pattern and flattening up indicators. ? In sync with the external jitters and lack of fresh impetus, KLCI is envisaged to consolidate further after the bullish rally from Nov 16. Such consolidation should be perceived as healthy and bodes well for a resumption of rally in the medium term. Although volatility remains, grossly oversold slow stochastic indicator and firmer oil price will help to cushion any heavy selldown. We may anticipate trading interest to pick up within oil and gas sector (HLIB institutional BUYs are DAYANG-TP RM1.42 and REACH-TP RM0.83).

Source: Hong Leong Investment Bank Research - 12 Apr 2017