MARKET REVIEW

Asia’s markets ended lower, backtracking a 5.6% rally in the previous session as the Shanghai Composite Index slid 0.67% on profit taking. Sentiment was cautious as trade-deal enthusiasm eased and investors sought clarity on the US-China trade deals, after Trump postponed the additional tariffs deadline from 1 March on some USD200bn Chinese goods.

In tandem with lower regional markets, KLCI lost 5.6 pts to 1719 after traded within 10.9 pts between an intra-day high of 1,726 and a low of 1,715.2. Market breadth was negative with 285 gainers as compared to 674 losers as broader markets continued its healthy profit taking following recent relief rally from Dec 2018 lows. Moreover, sentiment was cautious amid ongoing tepid Feb reporting season.

The Dow slipped as much as 126 pts to 25,966 following a sluggish Home Depot results and forecast, coupled with weaker-than-expected housing data. However, the losses were narrowed to 34 pts at 26,058, supported by a bullish consumer confidence index, positive optimism over US-China trade deals as well as Powell’s testimony that the US economy remains healthy and the economic outlook as favourable but some “crosscurrents and conflicting signals” that justify a “patient approach” on future changes to interest rates.

TECHNICAL OUTLOOK: KLCI

We believe the overall outlook remains stable given that KLCI has been trending above multiple key SMAs. Continued buying momentum could see the index testing the long-term downtrend line near 1,738 (200D SMA) after undergoing healthy profit taking sessions after staging a relief rally from 52W low at 1,627 (18 Dec). A strong close above 1,738 would be bullish for the index to test 1,766 (100W SMA). Immediate supports are pegged at 1,708 (10D SMA), followed by 1,694 (30D SMA).

Hopes of a positive US-China trade deals as well as a dovish Fed, coupled with the recovery in crude oil prices and the headlines on the potential resumption in domestic mega projects should act as supporting catalysts for KLCI to retest the long-term downtrend resistance near 1738 levels. However, short term market would remain choppy and cautious amid recent batches of tepid 4Q18 results as well as net foreign outflows.

TECHNICAL OUTLOOK: DOW JONES

Recent small inverted hammer and Doji patterns as well as lingering toppish indicators are signalling potential retracement may happen soon, given that the Dow has not taken a breather since hitting the trough of 21,712 (26 Dec). Should that happen, we expect immediate support is situated at 10D SMA or 25,800 (S1). A decisive violation below S1 will trigger further sell down towards crucial long term 200D SMA support at 25,089 (S2). Conversely, a strong buying momentum above 26,278 (8 Nov high) would spur the index to revisit all-time high at 26,952 (3 Oct).

In the short term, Wall St near term remains positive, thanks to the progressive US-China trade talks and increasingly dovish Fed coupled with a healthy US economy. Nevertheless, facing with crosscurrents and conflicting worries over slowing economy and a deteriorating US 1Q19 earnings outlook (as consensus S&P 500’s EPS growth have shrunk to -0.9% from around +5% at the start of the year), mounting US debts, coupled with grossly overbought Dow (+20% rally since Dec low), a lot of the good news had been priced in and further strong gains are likely to cap near 27,000 levels.

TECHNICAL TRACKER: CLOSED POSITIONS

Yesterday, we had squared off our technical tracker position on OPENSYS (+14.3% return) after Hitting Our R2 Target at RM0.36.

Source: Hong Leong Investment Bank Research - 27 Feb 2019