Market review

• Asian stock markets were mostly negative taking cues from the overnight Wall Street sentiments. Despite the US dollar rising throughout the Asian hours, profit taking mode were spread across equities in the regional bourses as rising interest rates environment clouded the investors with cautious trading tone. The Nikkei fell 0.28%, while Hang Seng Index and Shanghai Composite Index declined 1.15% and 0.35%, respectively.

• Meanwhile, stocks on the local front remained weak for another session; the FBM KLCI slipped 0.72% ahead of GE14 as well as the ongoing global market rout. Market breadth was still negative with 680 losers vs 291 gainers. Despite the firmer Brent crude oil prices, most of the O&G stocks traded in the red territory. Overall market volumes were softer at 1.87bn (100-day average: 2.89bn).

• Wall Street traded towards an intra-day low of 23,823.08 pts amid the ongoing concerns on rising 10-year Treasury yield, but managed to recoup earlier session’s losses led by a rebound in Boeing after registering better than-expected results. The Dow snapped a 5-day losing streak, rising 0.25%, while S&P500 rose 0.18%.

Technical view

Rebound in sight, but upside limited

• The FBM KLCI is located around the immediate support trendline of 1,850 level. The MACD Line is above the zero level, but the MACD Histogram extended another red bar. Meanwhile, both the RSI and Stochastics are weakening. The resistance will be envisaged along 1,876-1,880, while the support will be set around 1,840- 1,850.

Market outlook

• Dow outlook: In the US, we may see extended tug of war between ongoing earnings season and the extended worries over the rising yield environment. Hence, Wall Street could persist within the consolidation phase over the near term. Also, any external shocks that may trigger a sell down below the Dow’s SMA200 (23,674) would be seen as a negative signal.

• KLCI outlook: Meanwhile, we believe severely overstocks stocks on the local front could be due for a technical rebound after a few sessions of negative market breadth recently. However, the external issues (toppish US 10-year Treasury yield, Fed’s interest rate outlook) and the GE14 may curtail the upside as traders are likely to take a cautious stance by deploying a selling into-strength strategy.

Source: Hong Leong Investment Bank Research - 26 Apr 2018