MARKET REVIEW

Asia key regional benchmark indices ended lower as the latest round of tariffs between the US and China has taken effects yesterday. Also, China had called off the planned trade discussions with the US last Friday, which has triggered investors’ selling activities. The Hang Seng Index declined 1.62%, while China and Japan markets were closed for public holiday.

Tracking the softer regional sentiment, the FBM KLCI closed lower at 1,800.17 pts (-0.58%). Market breadth was also bearish with the decliners led advancers by a ratio of 5-to-3. Overall traded volumes have dwindled to 1.64bn, worth RM1.50bn vs. traded volumes of 2.07bn, worth RM3.67bn on Monday. Nevertheless, O&G sector managed to capture traders’ attention with the firmer crude oil prices.

Wall Street snapped the 4-day winning streak after reports suggested that the Deputy Attorney General Rod Rosensteing was resigning from his post, which contributed to higher volatility in the markets amid concerns over increased political turmoil in the White House. Also, stocks were under pressure with the cancellation of US-China trade talks last week. The Dow and S&P500 fell 0.68% and 0.35%, respectively.

TECHNICAL OUTLOOK: KLCI

For the immediate trend, the FBM KLCI could be forming a bearish flag formation and may extend its mild retracement phase towards the support of 1,777. Also, the MACD Histogram has turned weaker. Meanwhile, both the RSI and Stochastic are providing mixed signals. Hence, we expect the consolidation on the FBM KLCI may persist with the upside pegged around the 1,888 (downward trendline). Should there be any downward violation below 1,777, next support will be at 1,760.

Despite the lower-than-expected tariffs imposed by the Trump administration, we expect sentiment on the local front may stay soft, tracking the weaker performance on the regional and Wall Street. However, we believe O&G stocks would see further trading activities on the back of the firmer Brent crude oil prices as it has surged towards a 4-year high.

TECHNICAL OUTLOOK: DOW JONES

The Dow has snapped the 4-day winning streak yesterday. Despite the MACD Line is still hovering above the Signal Line (indicating uptrend intact), Stochastic oscillator is overbought. Hence, we could anticipate further pullback of the Dow towards the support around 26,500 and the resistance will be envisaged around 27,000.

With the increase concerns over political turmoil, as well as the cancellation of the trade talks between the US and China, we may expect traders to stay cautious over the near term. Also, the FOMC meeting that will be held over the next two days will be the focus this week. Hence, with the extended cautious sentiment, we opine that the Dow could be having limited upside, trading within the range of 26,500-27,000.

Source: Hong Leong Investment Bank Research - 1 Oct 2018