MARKET REVIEW

Asia’s stock markets ended mostly lower on the back of extended worries on the global trade tensions as the US will be imposing tariffs on European Union goods on 18 Oct as well as the economic slowdown indicated in the US manufacturing activity recently. The Nikkei 225 and ASX200 declined 2.01% and 2.21%, respectively, but Hang Seng Index added 0.26%.

Tracking the negative Wall Street performance overnight, the FBM KLCI ended another session lower at 1,562.14 pts (-0.68%) on the back of follow-through selling pressure on index heavyweights. Market breadth was negative with decliners led advancers by a ratio of 5-to-3, accompanied by 2.18bn shares traded for the session, worth RM1.45bn.

Wall Street started the session on another round of sell down after ISM released its services index, which fell to a 3-year low, sparking concerns of a potential economic recession. However, sentiment quickly reversed with the increasing expectations that the Fed may cut interest rates as early as this month and bargain hunting activities emerged. The Dow and S&P 500 gained 0.47% and 0.80%, respectively, while Nasdaq advanced 1.12%.

TECHNICAL OUTLOOK: KLCI

The FBM KLCI traded lower after the violation below the 1,581 level two trading days ago. The MACD indicator continues to trend lower over the past few sessions, but both the RSI and Stochastic oscillators are hovering in the oversold region. With the oversold momentum oscillators, we think the KLCI could be due for a slight technical rebound. However, the upside will be limited around 1,570-1,580. Support will be located around 1,550, followed by 1,530.

With the sentiment reversing from negative into the positive region overnight on Wall Street, as well as the grossly oversold indicators, we anticipate the KLCI to follow suit with a mild rebound after the recent selloffs below the significant level of 1,580 (on 2-Oct). In the meantime, investors will be monitoring the upcoming Budget 2020 as well as the trade discussion details between US and China next week for more clarity. KLCI’s range will be located around 1,550-1,580.

TECHNICAL OUTLOOK: DOW JONES

The Dow has rebounded off the SMA200 level (~25,837), forming a hammer candle. The MACD line is slightly below zero, while both the RSI and Stochastic oscillators are turning higher from the oversold region. Hence with the improving momentum oscillators, we believe the technical rebound could retest the resistance around 26,400.

We maintain our view that the Dow will remain choppy despite yesterday’s rebound as market sentiment will depend highly on the news flow that will be emerging in October as major events such as trade discussion between the US and China as well as the FOMC meeting at end-Oct may contribute to higher volatility. Unless a trade deal is being struck between the US and China in the upcoming meeting in Washington, downside bias tone may still persist on Wall Street. The Dow’s trading range is located around 25,837-26,400.

Source: Hong Leong Investment Bank Research - 4 Oct 2019