MARKET REVIEW

Asian bourses ended mixed, hamstrung by a dearth of activity as markets in Hong Kong, China, Taiwan and Vietnam were still closed for lunar new year holidays. Sentiment remained cautious following the downgrade of 2019 eurozone GDP growth outlook by the EU to 1.3% (from 1.9% previously) and ahead of the crucial US Treasury Secretary Minchin and trade representative Robert Lighthizer visit to Beijing next week to continue negotiations over the longstanding trade dispute before the 1 March deadline.

After a 2-day CNY breaks and playing catch-up with strong Wall St gains lately, KLCI staged a resounding 9.8-pt rebound to 1693.4 on the first day of the Year of the Boar, led by MISC (+26 sen to RM6.96), TENAGA (+48 sen to RM13.42), MAXIS (+14 sen to RM5.70), GENTING (+15 sen to RM7.12) and PETGAS (+34 sen to RM18.00). Market breadth was positive with 443 gainers as compared to 261 losers amid a resumption of buying interests in small caps and lower liners, supported by the rallies in FBM Small Cap (+1.2%) and FBMACE (+1%).

The Dow dived as much as 390 pts to 25000 before narrowing the losses to 221 pts at 25170. Sentiment turned sour amid concerns over fragile global economy after downgrade by the EU for the eurozone 2019 GDP growth and nagging US-China trader jitters after National Economic Council Director Larry Kudlow said that there is still a long way to go before the US will strike a deal with China coupled with a report by CNBC that a meeting between President Trump and China’s Xi is not likely before the 1 March deadline.

TECHNICAL OUTLOOK: KLCI

Following the recent 1.3% or 21.9 pts pullback to a low of 1683.6 after hitting YTD high of 1705.5 on 28 Jan, KLCI staged a 9.8-pt technical rebound to 1693.4 yesterday, above 10D/20D/50D SMAs. In wake of the bullish Harami candlestick, KLCI is poised to stage a breakout above the long awaited 1700 levels (i.e. downtrend line) as technical indicators are on the mend. A successful breakout will lift KLCI further to test the 1705 (28 Jan high) and 1712 (100D SMA) resistances. Conversely, KLCI is likely to engage in an extended consolidation with key supports near 1676 (38.2% FR) followed by 1666 (50% FR).

Although the dovish Fed’s monetary stance and improving technical readings could spur KLCI to recapture the 1700-1705 levels in the near term, overnight slide on Dow and an uncertainty of the upcoming Feb reporting season may cap further upside beyond 1705 levels. Overall, we expect an extended range bound mode until further clarity from US China meeting next week.

TECHNICAL OUTLOOK: DOW JONES

The Dow continued its uptrend above the 10D SMA (25013) but the momentum is tapering off after the wild swings within 25314-25002 levels before tumbling 221 at 25172 overnight. Although the MACD indicator continues to stay firmly above the zero, weakening RSI and Stochastic readings highlighted potential consolidation ahead to neutralise current overbought positions, with key support near 25000 psychological levels. A decisive violation below 25000 will trigger more downside towards 24600 zones. Stiff resistances are situated at 25500/25800.

Following overnight 0.9% pullback in Dow, near term Dow upbeat undertone has been interrupted and an extended consolidation is likely to prevail amid uncertainty and sometimes contradictory comments from Washington. Moreover, sentiment is likely to be compounded by heightened concerns over slowing global economy and US 2019 earnings outlook as 1Q19 earnings growth estimates have shrunk to below 1% from above 5% at the start of the year.

Source: Hong Leong Investment Bank Research - 8 Feb 2019