MARKET REVIEW

Following the joyful ride after a "Phase 1" trade deal between the US-China last week and a suspension of a planned tariff hike for USD250bn of Chinese goods this week, Asian markets ended mixed yesterday amid dearth of details around the agreement has somehow curbed enthusiasm. Sentiment was further dampened by news that China demanded further talks before the end of October to hammer out the details before President Xi Jinping signs it.

In line with softer tone on regional markets, KLCI eased 1.4 pts at 1566.2 pts after traded within intra-day high of 1568.2 and a low of 1563.1. Trading volume decreased to 2.62bn shares worth RM1.73bn as compared to Monday’s 2.99bn shares worth RM1.84bn. Market breadth was positive with 410 gainers as compared to 391 losers.

The Dow closed 237 pts or 0.9% higher at 27025, as investors cheered a raft of largely upbeat corporate earnings reports (led by JP Morgan, Citigroup, Wells Fargo and United Health) while considering the implications of a partial US-China trade deal announced last Friday and the possibility of a breakthrough in Brexit negotiations.

TECHNICAL OUTLOOK: KLCI

In wake of “mini” US-China trade deal optimism and a mildly positive Budget 2020, KLCI opened the week higher to as high as 1569 (14 Oct) after hitting fresh 52W low of 1548 (10 Oct) before easing 1.4 pts at 1566.2 yesterday. Technically, the ongoing rebound remains intact as MACD indicator is on the verge of forming a golden cross pattern, while both the RSI and Stochastic oscillators are trending higher. Immediate resistance is located around the neckline support-turned-resistance of 1572 (14 May low). A successful breakout above 1571 will spur greater rally towards 1585 (SMA 30D) and 1593 (SMA 50D) zones. Key supports are 1548 (low BB) and 1530 levels.

Following the rebound on Wall Street overnight after a good start to the US 3Q19 reporting season overnight, sentiment on the local bourse is still likely to turn more optimistic this week (testing 1572-1585 zones), supported by the mildly positive Budget 2020 and bottoming up technical indicators. However, the index should encounter stiff barriers near 1586-1600 zones amid earnings woes and unattractive valuations, exacerbated by still unresolved US-China trade disputes and domestic worries. Key supports are pegged at 1530-1548 territory.

TECHNICAL OUTLOOK: DOW JONES

The Dow has regained its upward trending mode again following the rebound above the SMA200 levels near 26000. The MACD golden cross coupled with the hook-ups on RSI and Slow stochastic indicators auger well for further advance to retest all-time high of 27398 (18 Jul) and 27600 (upper channel) territory. Key supports are set around 26700/26500.

Broadly speaking, sentiment on Wall Street could stay cautious amid the start of 3Q19 reporting season as the S&P 500 earnings are expected to fall 4.6% YoY, recording the first time that index company earnings have fallen for three straight quarters. Moreover, sentiment may be dampened further due to the return of trade-deal scepticism as China wants another round of discussions before signing the phase-one deal with the US. Nevertheless, we believe any small steps forward could increase business confidence and spark capital investment, lifting corporate profits. Hence, we expect significant downside risk is limited (supported by the strong 200D SMA near 26000), cushioned by expectations of another round of Fed rate cut during the 30-31 Oct FOMC meeting. For the Dow, the trading range is set around 26500- 27400.

TECHNICAL TRACKER: CLOSED POSITION

We had squared off our position on GREATEC (10.5% gains) and TADMAX (7.1%) yesterday after hitting our R2 upside targets.

Source: Hong Leong Investment Bank Research - 16 Oct 2019