MARKET REVIEW

Overnight Dow’s 1.3% rally spurred Asian markets higher amid optimism the upcoming earnings season will be robust enough to overshadow escalating trade tensions. Meanwhile, 10-year Treasury yields ticked higher as risk aversion faded after the US implemented tariffs on US$34bn of imports from China, with Beijing moving to potential retaliate with similar measures.

Following higher overnight Dow and better regional markets, KLCI jumped 14.5 pts or 0.87% to 1687.1 pts led by telco and oil & gas heavyweights. Market breadth was positive with 455 gainers as compared to 341 losers. However, trading volume decreased to 1.99bn shares worth RM2.24bn as compared to Monday’s 2.01bn shares worth RM2.04bn amid concerns over the start of tit-for-tat trade tariffs between the two largest global economies.

Wall Street ended higher for the 4th session as the latest corporate earnings season got under way while worries of an ongoing trade war eased. The Dow soared 143 pts to 24919, with PepsiCo rallied 4.8% after posting stronger-than-expected earnings. Other Dow components such as the trio of giant banks—JPMorgan/Citigroup/Wells Fargo are scheduled to release their results later this week. According to consensus, market is anticipating that the 2Q18 S&P 500 earnings will continue to rise strongly over 20% after a stellar 24% surge in 1Q18.

TECHNICAL OUTLOOK: KLCI

Following the 1.3% overnight jump in Dow, KLCI managed to form a 2nd white candle, tracking improving regional markets and hook-up in technical oscillators. In the near term, we think the technical rebound could have further legs towards 1,690-1,700, while support will be pegged around 1,640-1,650.

On the back of positive undertone from Wall Street overnight, Bursa Malaysia is envisaged to trend higher while worries of an ongoing trade war took a backseat. Although the ongoing strong U.S. growth is leading the global expansion and powering corporate earnings, as the tariffs announced so far are unlikely to have a significant impact on the overall U.S. or global economy, the danger is that a cycle of tariffs and retaliatory tariffs may turn into a spiral, which may restrict the oversold technical rebound.

TECHNICAL OUTLOOK: DOW JONES

The Dow continued to surge higher for the 4th consecutive streak and could poise for a symmetrical triangle formation breakout. The MACD Indicator has turned positive, suggesting a potential “buy” signal while the RSI is hooking positively above 50; indicating the momentum is picking up. We may anticipate the Dow to retest immediate resistances at 25000 (downtrend line) and 25368 (61.8% FR) while supports are located around 24124 (23.6% FR) and 24000.

In the US, market tone could extend its positive trading in the short term amid rosy expectations of a strong US economy and the 2Q18 report cards as the trade tensions took a backseat. However, following the strong surge in the Dow, it may face with mild profit taking activities after staging a relief rally from monthly low of 23997 on 28 June.

TECHNICAL TRACKER: CLOSED POSITIONS

Yesterday, we took profit on TALIWRK (Technical Tracker; +20% gain) and squared off SCICOM (Technical Tracker; 8.9% loss) amid weakening technicals.

Source: Hong Leong Investment Bank Research - 11 Jul 2018