MARKET REVIEW

Most of the major Asian markets slump with top losers from HSI (-1.9%), SHCOMP (-1.4%) and NIKKEI (-1.1%), tracking lower Dow overnight amid softer-than-expected December retail sales data (the biggest monthly drop since Sep 2009), raising concerns over a slowing US economy. Meanwhile, sentiment was edgy as investors await developments from the ongoing US-China trade negotiations in Beijing.

Tracking weaker regional markets, KLCI eased 0.23-pt (+1.7 pts WoW) after trading within 1693.9 and a low of 1687.1. Trading volume decreased to 3.06bn shares worth RM2bn as compared to Thursday’s 3.89bn shares worth RM2.29bn on Thursday. Market breadth was negative with 354 gainers as compared to 475 losers as most of the small caps and ACE stocks were engaged in profit taking pullback after recent run-up.

Last Friday, the Dow soared 444 pts to 25883, ending the week 3.1% higher and recording its 8th straight week gains. Sentiment was bullish on favourable progress in US-China trade negotiations, shrugging off Trump declaring a national emergency in a bid to fund his promised wall at the US-Mexico border without congressional approval. Expectations for talks to continue this week in Washington has added fresh hope that a resolution was near, even if the two countries remained deadlock on certain key points. Stock markets will be closed on Monday in observance of the Presidents Day holiday.

TECHNICAL OUTLOOK: KLCI

After hitting YTD high of 1706 on 28 Jan, KLCI has been trending range bound YTD with key support at 1666 (YTD low on 2 Jan). Overall, MACD and RSI indicators are staying flattish while the Stochastic reading appears oversold. Immediate support is near 1679 (50D SMA), followed by 1666. Conversely, if the downtrend line near 1700 is taken out decisively, then a temporary climb to test 1706 (100D SMA) and 1743 (200D SMA) may be next.

Dow’s 1.7% rally last Friday and positive expectations of the resumption of US-China trade talk in Washington this week should bode well for KLCI to retest congested resistances at 1700- 1706 levels. However, sentiment would remain cautious as the stream of earnings release accelerates during this February reporting season (which is unlikely to excite market). In addition, foreign trade flows have turned negative over the past two trading days and may limit the upside potential on the key index.

TECHNICAL OUTLOOK: DOW JONES

The Dow registered its 4th gain in five days after logging a 1.74% rally last Friday, forming a positive long white candle. On the technical indicators, the MACD and RSI indicators continued to expand further while the Stochastic oscillator is overbought, which could suggest potential further upside but the momentum could be tapering off, with stiff resistances at 26000-26300. Conversely, falling back below the 10D SMA (25366) and 200D SMA (25036) supports may warn that a pullback may be taking place.

In wake of the optimistic progress from US-China trade talks and increasingly dovish Fed coupled with Trump’s willingness to extend the 1 March deadline and could even remove the tariffs if a deal is done, the Dow is envisaged to trend higher this week. However, growing worries over the global economy coincide with a deteriorating 1Q19 earnings outlook (as consensus S&P 500’s EPS growth have shrunk to below -0.5% from around +4-5% at the start of the year) coupled with the overbought technical readings could suggest limited upside ahead with stiff resistances at 26000-26300 while supports are pegged at 25000-25300 zones.

Source: Hong Leong Investment Bank Research - 18 Feb 2019