MARKET REVIEW

Despite affirmation by the Chinese commerce ministry that China will strive to reach Phase 1 deal with the US, Asian markets closed lower due to concern that the trade agreement may not be inked by 15 Dec 2019 when the US is scheduled to levy 15% tariffs on about USD156bn of Chinese products. The prospects for progress on trade also weakened when China condemned a American bill aimed at protecting human rights in HK and said supporting the protesters was a “gross” interference in Hong Kong affairs, vowing to take the steps necessary to safeguard its sovereignty and security.

Tracking sluggish regional markets and on-going soft Nov reporting season, KLCI slid as much as 14 pts to 1587.1 before reducing the losses to 9 pts at 1592.2. Trading volume increased to 2.93bn shares worth RM2.16bn as compared to Wednesday’s 2.9bn shares worth RM1.98bn but market breadth was bearish with 320 gainers as compared to 552 losers.

Ambiguity over the status of US-China trade progress and the passing of two bills to back HK protesters (a measure that angered Beijing and accused the US of interfering in domestic affairs) saw the Dow falling as much as 113 pts to 27708. However, the losses were narrowed to 55 pts at 27766 after reports saying that China’s chief trade negotiator Liu He had invited American negotiators to Beijing for face-to-face talks.

TECHNICAL OUTLOOK: KLCI

Copying external and internal uncertainties, KLCI slid 9 pts at 1592 on persistent profit taking pullback after enjoying a rally from a 4Y low of 1548 (10 Oct) to 1614 (12 Nov). Following the breakdown below 1596 (mid BB), KLCI is envisaged to extend its consolidation on potential MACD dead cross formation whilst RSI and stochastic indicators are hooking downward. Key supports are situated at 1585 (50D SMA) and 1573 (61.8% FR) while resistances are located around 1600 and 1610 (100D SMA) with more formidable resistance at 1633 (200D SMA).

On our local front, we expect sentiment to remain edgy amid the ongoing November reporting season and the US-China trade deal uncertainty. Following recent breakdown below 1600 psychological support, KLCI is envisaged to extend its consolidation on technical weakness but traditional window dressing activities in December is likely to lend some support to the KLCI, with key supports situated at 1573-1585 levels. On the contrary, stiff resistances are located around 1610-1633 levels.

TECHNICAL OUTLOOK: DOW JONES

After hitting all-time high of 28090 (9 Nov), the Dow has retraced 1.15% or 324 pts to end at 27766, recording its 3rd straight losses and closed slightly below the 10D SMA of 27819. In wake of MACD dead cross formation and reversing RSI and Stochastic oscillators, the Dow is envisaged to retain its short term overbought consolidation and upside could be capped at 28200-28500. Key supports are situated at 27323-27550 zones.

In wake of an overbought market, the Dow is likely to remain event-driven in the near term until an agreement can finally be reached by the US and China. Nevertheless, any pullback is likely to be cushioned near 27300-27500 amid recent positive economic data and upbeat US 3Q19 reporting season. Key resistances are located at 28200-28500.

TECHNICAL TRACKER: CLOSED POSITION

We had squared off our position on NAIM (hit R1 with 6.8% gains) and SAPNRG (hit S2 with 5% loss) yesterday.

Source: Hong Leong Investment Bank Research - 22 Nov 2019