MARKET REVIEW

Asia’s stock markets traded mixed in the anticipation of solid progress in the US-China trade discussions. There was news reporting that US President Trump may be considering 60-day extension for China tariffs deadline. The Nikkei 225 (-0.02%) and Shanghai Composite Index (- 0.05%) ended flattish, while Hang Seng Index declined 0.23%.

Meanwhile, the FBM KLCI bucked the trend, closing higher in the second half yesterday; the key index rose 0.22% to 1,689.06 pts. Market volume increased to 3.89bn, worth RM2.29bn compared to 2.63bn (valued at RM1.88bn) on Wednesday. Market breadth was positive as broader market turned slightly bullish after Brent oil prices gained traction above USD64; there were 463 advancers vs. 359 decliners.

Wall Street snapped a 4-day winning streak on the back of softer-than-expected retail sales data, (dropped 1.2% in December, indicating the biggest monthly drop since Sep-2009). The Dow and S&P500 declined 0.41% and 0.27%, respectively dragged by consumer staples sector. Meanwhile, Nasdaq rose marginally by 0.09%.

TECHNICAL OUTLOOK: KLCI

The FBM KLCI rebounded marginally but is still trending within the range of 1,682-1,700, the MACD indicator is staying flattish above the zero level. Also, the RSI (hooked above 50) and Stochastic (hovering below 50) oscillators are suggesting mixed signals; indicating that the key index may further consolidate sideways over the near term. Resistance will be located around 1,700, while the supports will be envisaged at 1,682, followed by 1,666.

Despite the FBM KLCI closing on a firmer note yesterday, foreign trade flows have turned negative over the past two trading days and may limit the upside potential on the key index. Nevertheless, traders are likely to focus on the broader market for trading opportunities within the O&G and technology-related sectors as there were huge increase in trading volumes over the past few trading sessions.

TECHNICAL OUTLOOK: DOW JONES

The Dow snapped the 4-day winning streak, but is still trending within the short term upward channel. On the technical indicators, the MACD Indicator has turned flat, the Stochastic oscillator is overbought and the RSI oscillator has dropped below 70 (overbought threshold). With the combination of technical indicators, it could be suggesting that the upside move may be capped along 26,000, while the support will be anchored around the SMA200 level at 25,000.

Although trade developments have shifted to a slightly optimistic tone at this juncture following statements from President Trump, traders were focusing on retail sales data, which is likely to extend the retracement phase on the Dow over the near term, in tandem with the overbought signals suggested by both the RSI and Stochastic oscillators. Nevertheless, should President Trump extend the trade truce deadline by 60 days, it could send a relief tone towards the stock markets.

1Q19 QUARTERLY RETAIL STRATEGY

We took profits on FRONTKN (+36.7% return) and TAKAFUL (+18.4% gains) on 14 Feb after hitting our LT price objective.

Source: Hong Leong Investment Bank Research - 15 Feb 2019