MARKET REVIEW

Despite the mixed closing on Wall Street overnight, coupled with the uncertain developments on the trade front, Asia’s stock markets managed to close on a firmer note led by Hang Seng Index, advancing 1.65% for the session. Meanwhile, both Shanghai Composite Index and Nikkei 225 gained 0.39% and 0.97%, respectively.

Stocks on the local front trended mostly higher, taking cue from regional benchmark performances; the FBM KLCI rose 0.44% to 1,701.03 pts, securing above the 1,700 psychological level for the second time in 4 trading days. Market breadth was positive with 472 advancers vs. 356 decliners, accompanied by 2.48bn shares traded for the session, worth RM2.05bn. Throughout the session, we observed that most of export-oriented stocks traded higher on the back of weaker ringgit tone.

On Wall Street, market participants cheered positively after President Trump ended the 35-day government shutdown, coupled with better-than-expected corporate earnings from consumer stocks such as Starbucks and Colgate-Palmolive. The Dow and S&P500 rose 0.75% and 0.85%, respectively, while Nasdaq jumped 1.29%.

TECHNICAL OUTLOOK: KLCI

Technical readings are turning more positive with the FBM KLCI ending briefly above the 1,700 psychological level for the second time in 4 trading days. The MACD Histogram gained momentum, in tandem with the MACD Line’s upward path. Meanwhile, both the RSI and Stochastic oscillators are improving above 50; positive momentum is intact. Hence we believe the key index should trend higher to retest the previous resistance along 1,726-1,730, while support will be set around 1,680, followed by 1,666.

Following the surge on Wall Street, especially as the Nasdaq jumped more than 1%, coupled with the weaker ringgit trend, we may anticipate technology stocks on the local front to follow suit. Meanwhile, the FBM KLCI may extend its rebound after securing above the 1,700 level over the past week. Nevertheless, construction stocks could take a back seat over the near term on the back of the termination of the ECRL mega project.

TECHNICAL OUTLOOK: DOW JONES

The Dow gained momentum last Friday, but buying support fizzled off, forming an inverted hammer formation near the SMA200 level. The MACD Indicator is improving above zero. However, the Stochastic oscillator is overbought and the RSI indicator is approaching the overbought region. Hence, we believe that the V-shape rebound on the Dow could turn flattish over the near term. Resistance will be envisaged around 24,965, followed by 25,500. Support will be pegged around 24,000, followed by 23,543.

As the US partial government shutdown was brought to a temporary end, coupled with the positive corporate earnings over the past week, we opine that Wall Street could trend higher at least over the near term. However, should there be any negative surprises from the US-China trade discussions; it may limit the upside potential for the major indexes. The Dow’s resistance is envisaged around the 24,965 (SMA200).

Source: Hong Leong Investment Bank Research - 28 Jan 2019