MARKET REVIEW

Lifted by the technology and banking sectors, Asian markets ended higher following an overnight 2.2% rally on Dow amid robust corporate earnings and upbeat economic data, temporary shrugging off the nagging trade tensions and soaring treasury yields.

Tracking stronger Asian markets, KLCI rose 3.8 pts to 1740.6, led by GENM, DIGI, MAYBANK, PCHEM, IOICORP and MAXIS. Volume was higher at 2.02bn units valued at RM2.08bn against Tuesday’s 1.52bn units valued at RM1.61bn, supported by positive market breadth as gainers 538 outpaced losers 275.

The Dow slumped as much as 314pts on profit taking after surging 548 pts on 16 Oct, led by IBM’s disappointing results and higher Treasuries yields as Fed minutes appeared to lean toward the chance of more hikes in the future. Sentiment was also dampened by the US Commerce Secretary Wilbur Ross comment that the US-China trade talks are on hiatus for now, but not at an impasse. Nevertheless, bargain hunting reduced the early losses to end 92 pts lower at 25706.

TECHNICAL OUTLOOK: KLCI

While the technical rebound that we witnessed last Friday may continue following the successful refill of 1700-1730 gap (12 Oct) and a hammer candle formation last Friday, the momentum is expected to taper off due to the lack of rerating local catalysts and prolonged external headwinds, ahead of the widely anticipated Budget 2019 on 2 Nov. Key reistance is 1755 (50% FR) level, while supports fall on 1700 and 1683 (11 Oct low)

Ahead of the 11MP mid-term review today and the Budget 2019 coupled with overnight Dow’s retreat, risk off mode prevails and any rebound would be capped at 1755 zones. Market participants could be staying sidelines due to lack of strong rerating catalysts and persistent foreign selling of RM32m yesterday (its 10th straight days), amounting to a massive RM1.18bn outflows in Oct against +RM66m in Sep.

TECHNICAL OUTLOOK: DOW JONES

Despite recent pullback from all-time high of 26951(3 Oct), the Dow has managed to build a strong base above the key 200D SMA at 25154. A further decisive reclaim above 26000 will spur greater upside to retest 26300-26600 zones before heading 27000 levels amid bottoming up RSI and stochastic indicators while the MACD histogram is sloping upwards. On the contrary, a decisive breakdown below the SMA200 will witness a resumption of selldown towards 24800 (support trendline) and 24200.

The Dow is likely to extend its consolidation mode on the back of upcoming US mid-term election and ongoing 3Q18 earnings season. Moreover, lingering concerns over US-China trade discussions progress and geopolitical tensions in Italy and Middle East coupled with the ascent of US 10Y bond yields could pose further downside risks to Wall St.

Source: Hong Leong Investment Bank Research - 18 Oct 2018