Following the strong recovery on Wall Street overnight (after Dow dropped more than 500 points on Monday), Asia’s stock markets trended mixed as market participants deployed the wait-and-see strategy under the rising trade tensions environment. The Nikkei 225 fell 0.34%, while Shanghai Composite Index and Hang Seng Index traded slightly higher by 0.37% and 0.07%, respectively.

However, on the local front, we noticed the extended selling pressure continues to weigh on index heavyweights and the FBM KLCI dropped another 10.68 pts or 0.64% to 1,652.63 pts. Market breadth was still negative with 549 decliners vs 253 advancers and on the broader market, overall traded volumes came in lower at 1.43bn (worth RM1.51bn) as compared to 2.65bn shares traded on Monday. Meanwhile, MYEG, PRESBHD and DNEX traded actively lower yesterday as investors could be taking a downward bias stance on software-related stocks after the cancellation of SKIN immigration project.

On Wall Street, the Dow traded higher by more than 1% at the opening bell after Trump tweeted that the US was having “very productive conversations going on with China”, as well as China is willing to lower the tariffs on cars made in the US (from 40% to 15%). However, profit taking activities emerged as President Trump threatened a government shutdown and erased most of the gains of the major indexes; the Dow and S&P500 closed marginally lower by 0.22% and 0.04%, respectively, while Nasdaq gained marginally by 0.16%.

TECHNICAL OUTLOOK: KLCI

The FBM KLCI extended its selling pressure and breached below the immediate support of 1,658 (post GE14 low) and the MACD Indicator turned negatively below zero. Both the RSI and Stochastic oscillators have hooked below 50 last week and it is approaching the oversold region. Hence, we believe the FBM KLCI could perform a technical rebound, but the upside will be capped around 1,658-1,673. Next support will be located around 1,630, followed by 1,619.

On the local bourse, we expect the bearish tone may extend this week as news headlines are still in the negative mood. Hence the downside risk outweighs the upside reward at this juncture. With that, traders may lookout for opportunities within the defensive stocks with high potential dividend yield to be paid out in the future.

TECHNICAL OUTLOOK: DOW JONES

The Dow managed to recover into the upward channel, but selling pressure emerged and the key index closed below the lower band of the channel. The MACD Indicator is hovering below the zero level after the “dead” cross formed few trading days back, while the RSI and Stochastic oscillators are trending below 50. With the negative momentum intact, we expect the key index to retest the support at 24,000-24,095. Meanwhile, resistance will be envisaged around 25,095 (SMA200)

Despite China agreeing on the reduction of auto tariffs, it remains unknown of when the change would goes into effect. Hence, the volatile movement may persist amid the ongoing trade tensions between the US and China. Also, with President Trump threatened to shut down government if Congress doesn’t fund his proposed Mexico wall would pose further knee jerk reaction towards stock markets.

Source: Hong Leong Investment Bank Research - 12 Dec 2018