MARKET REVIEW

Asia’s stock markets ended mixed as investors reassessed the FOMC meeting minutes, which highlighted the downside risk of a potential slowdown in economic activities. Also, the traders were side lines awaiting the conclusion on the trade negotiations between the US and China. The Nikkei and Hang Seng Index added 0.15% and 0.41%, respectively, while Shanghai Composite Index fell 0.34%.

Meanwhile, the FBM KLCI traded mostly in the negative territory, but managed to pare down earlier losses, rebounding into the positive region on the back of last minute buying support into selected heavyweights such as CIMB and Ambank. Market breadth was also positive with advancers led decliners by a ratio of 5-to-4, accompanied by market traded volumes of 3.71bn, worth RM3.00bn. Property, building materials and construction related stocks were traded actively throughout the session.

Wall Street ended lower, snapping the 8-day winning streak as investors digested several softer-than-expected economic data; the Philadelphia Federal Reserve business index turned to negative 4.1 (first time since May 2016) in February from 17 in January, while IHS Markit US manufacturing PMI fell to 53.7 in February, a 17-month low, from 54.9 last month. The Dow and S&P500 declined 0.40% and 0.35%, respectively, while Nasdaq fell 0.39%.

TECHNICAL OUTLOOK: KLCI

The FBM KLCI has briefly surpassed our initial anticipated resistance at 1,730 and the MACD indicator continues to expand positively above zero. Nevertheless, we opine that the recent rally is slightly stretched and the key index could be due for a retracement on the back of overbought signals on both the RSI and Stochastic oscillators. Support will be anchored around 1,700, followed by 1,682. Resistance will be seen along 1,740-1,750.

On the local front, we believe the negative sentiment on Wall Street could spill over towards stocks on the local bourse after 3 sessions of positive rally on the KLCI. Should there be any negative surprises from the ongoing February reporting season or US-China trade talks, it will dampen the tone further on the markets. The KLCI may pull back towards the 1,710-1,720 zones.

TECHNICAL OUTLOOK: DOW JONES

The Dow snapped the 8-day winning streak, but still hovering within the short term upward channel. The MACD Indicator is still hovering above the zero level. However, both the RSI and Stochastic oscillators are overbought, suggesting that the upside could be capped along the 26,000 level over the near term. Should there be a violation below the upward channel, next support will be at 25,000. Resistance will be at 26,000-26,500.

With the slowing economic data, investors may take some profits off the table, limiting the upside potential on Wall Street. Meanwhile, traders are also waiting for the outcome on the trade discussions between the US and China before the key trade deadline on 1st of March. The Dow’s immediate resistance is located around 26,000.

Source: Hong Leong Investment Bank Research - 22 Feb 2019