MARKET REVIEW

Most of Asia’s stock markets (Hang Seng Index fell 0.65%, but Shanghai Composite Index gained 0.55%) ended on a mixed note on Tuesday amid the ongoing trade talks between US and China and were shut for Labour Day holiday. Meanwhile, Australia ASX200 gained 0.8% led by banking stocks on Wednesday.

Meanwhile, KLCI added 0.30% to 1,642.29 pts on Tuesday led by banking heavyweights such as Maybank and CIMB. Market breadth was however, negative with 473 losers vs. 326 gainers. Market traded volumes stood at 2.36bn, valued at RM2.25bn. Nevertheless, selected export-related stocks such as Karex, Top Glove and Lii Hen traded higher.

Wall Street started the session with a positive tune following the decent Apple’s earnings and upbeat outlook, accompanied by positive developments on the trade front, which could be resolved in the near future. Also, the strong jobs data in April has lifted the Dow towards an intraday high of 26,689. However, selling pressure emerged following comments by Fed’s official that “lower rates may not be in the cards”, removing the speculation of a potential interest rate cut in the future.

TECHNICAL OUTLOOK: KLCI

The FBM KLCI trended higher on Tuesday, forming a flag formation breakout and the MACD indicator continues to recover further. Meanwhile, both the RSI and Stochastic oscillators remain positive over the last few sessions. Hence, we believe the KLCI may extend its technical towards 1,658-1,666 levels. Support will be located around 1,630, followed by 1,610.

With the positive statements from US officials as White House Chief of Staff Mick Mulvaney commented that “the Trump administration's trade talks with China will be resolved within the next two weeks”, coupled with recovering technicals, we opine that the KLCI may trend higher over the near term. However, the negative sentiment on Wall Street could limit the upside potential of the KLCI and the key index’s resistance will be located around 1,658-1,666.

TECHNICAL OUTLOOK: DOW JONES

The Dow declined below the immediate support of 26,500 and the MACD Histogram expanded negatively after forming a “death cross” in the previous session, forming a bearish engulfing bar. Also, both the RSI and stochastic oscillators are turning lower after hitting overbought region last week. Hence, we believe the upward move could be limited towards 26,500-26,952, while support will be pegged around 26,000.

With the new information (no rate cut) from the Fed to be priced in by market participants, Wall Street’s upside could be limited at this juncture. Nevertheless, should there be any positive progress from the trade discussions by next week, which may limit the downside risk on Wall Street. At the same time, traders are likely to stay cautious with the ongoing US reporting season. The Dow’s resistance will be located around 26,952.

TECHNICAL TRACKER: ARB

Accumulate near the support at RM0.44-0.46. ARBB is involved in several business segments, which include timber related, Enterprise Resource Planning (ERP) and IoT equipment and may expand into re-energy solutions this year. We view this as a trading idea on the back of turnaround story since FY18, accompanied by a healthy 1Q19 results and we believe the expansion plans in ARBB could mark a decent year in FY19 for the Group. Besides, it has shown two quarters net profit of RM5.0m and RM5.1m in 4Q18 and 1Q19, respectively. With the strong gap-up formation on Tuesday, surpassing the resistance of RM0.51, the uptrend could sustain towards RM0.88 (LT target). Cut loss will be located around RM0.43

Source: Hong Leong Investment Bank Research - 2 May 2019