Most of regional benchmark indices ended on a softer note as investors will be refocusing on the trade developments between the US and China, where a delegation led by Vice Premier Liu He will be send to Washington for a fresh round of high level trade talks later this week. The Nikkei 225 and Shanghai Composite Index slipped 0.60% and 0.18%, respectively, but Hang Seng Index inched marginally higher by 0.03%.

Similarly, stocks on the local front succumbed to profit taking activities tracking the sentiment on the regional front; the FBM KLCI slid 0.21% to 1,697.50 pts. Market breadth was also negative with decliners leading advancers with a ratio of 5-to-3. Market traded volumes stood at 2.25bn shares, worth RM1.95bn. Also, selected gloves stocks such as Top Glove and Hartalega were traded lower amid stronger ringgit tone yesterday.

Wall Street fell sharply lower led by weaker-than-expected corporate earnings from Caterpillar and softer guidance from chipmaker Nvidia moving forward in view of slowing economy in China. The Dow and S&P500 declined 0.84% and 0.78%, respectively, while Nasdaq fell 1.11%.

TECHNICAL OUTLOOK: KLCI

Bearish engulfing bar has formed yesterday after the FBM KLCI securing above the 1,700 level two trading days ago. The MACD indicator has turned slightly weaker, while the Stochastic oscillator is hovering within the overbought region. Hence, we believe the key index could be due for further retracement, with the supports located around 1,680, followed by 1,666. Meanwhile, immediate resistance will be envisaged around 1,700, followed by 1,730.

We expect the negative sentiment from Wall Street to spillover towards stocks on the local front as traders may lock in profits ahead of the Chinese New Year long holiday. Besides, the softer Brent oil prices and stronger ringgit tone yesterday could pressure the buying interest on O&G and export-oriented sectors throughout this week. The FBM KLCI is likely to remain range bound around 1,700 over the near term.

TECHNICAL OUTLOOK: DOW JONES

The Dow pulled back after forming the inverted hammer candle two days ago. The MACD Indicator has turned flattish, while the Stochastic oscillators are hovering within the overbought region. With the technical indicators suggesting that the momentum is weakening on the Dow, we may anticipate further pullback of the Dow over the near term. Support will be pegged around 24,000. Meanwhile, resistance will be set around 24,965 (SMA200).

As the tone of the ongoing corporate earnings has contributed towards a weaker tone in the stock markets, we believe the upside will be capped for Wall Street over the near term. Also, the outcome of the trade talks later this week will be a major focus at least for the near term and investors are likely to stay cautious. The Dow is likely to be capped around 24,965 (SMA200).

Source: Hong Leong Investment Bank Research - 29 Jan 2019