MARKET REVIEW

Most of the regional benchmark indices ended lower following the Brexit development overnight as UK lawmakers voted to reject a limited time frame for reviewing legislation related to Britain’s withdrawal from the EU (suggesting that UK is almost certainly not going to leave on October 31). The Hang Seng Index and Shanghai Composite Index fell 0.82% and 0.43%, respectively, but Nikkei 225 rose 0.34%. Meanwhile, stocks on the local front mostly endured another round of profit taking activities after a good relief rebound last week; the FBM KLCI slipped 0.34% to 1,568.79 pts. Market breadth was negative with decliners led advancers by a ratio of 4-to-3. Market volumes stood at 2.61bn shares traded for the session, worth RM1.69bn. Nevertheless, we noticed selected oil and gas stocks such as ARMADA, VELESTO and Sapura Energy traded actively higher for session.

Wall Street ended higher despite some disappointments in the ongoing US corporate earnings from several corporates such as Boeing and Caterpillar. However, of the S&P500 companies that have reported their earnings recently, more than 80% have posted better-than-expected results, according to FactSet; the Dow and S&P500 traded higher by 0.17% and 0.28%, respectively, while Nasdaq added 0.19%.

TECHNICAL OUTLOOK: KLCI

The FBM KLCI ended lower for the session after forming a flag pattern. The MACD Indicator is hovering below zero, but both the RSI and Stochastic oscillators are improving over the past few sessions. With the mixed technical readings on the indicators, we expect the FBM KLCI to trend sideways over the near term within a tight range between the support and resistance of 1,550 and 1,580, respectively.

Given the mildly positive performance on Wall Street overnight, coupled with decent ongoing US corporate earnings as well as slight optimism on trade developments, we expect short term buying support to emerge on KLCI. Also, the 5-day cumulative foreign inflow stood at RM225m. Nevertheless, upside may be capped along the way into November as traders may turn cautious over the local corporate reporting season and the key index’s resistance will be located around 1,580-1,600.

TECHNICAL OUTLOOK: DOW JONES

The Dow formed a flag formation near the 26,800-27,000 levels. The MACD Indicator is hovering above zero, while the Stochastic is overbought. Hence with the mixed technical readings, we may anticipate further pullback or sideways move over the near term. Resistance is pegged around 27,000-27,400, while support will be located around 26,106-26,400.

In the US, traders are still focusing on the ongoing earnings season and looking forward to the upcoming FOMC meeting (which consensus is looking at an easing bias tone) that will be held on 30-31 Oct. Also, cautious mood may surface during the APEC summit in Chile, where the decision on the phase one mini deal between the US and China will be revealed. The Dow’s trading range will be located around 26,106-27,400.  

Source: Hong Leong Investment Bank Research - 24 Oct 2019