MARKET REVIEW

Asian markets mostly recovered from Tuesday’s losses, with investors grappled closely on China’s progress in returning to work and the rate of new coronavirus infections in China slowed. Sentiment was also boosted by a raft of measures implemented by the government to support the economy amid the COVID-19 epidemic.

After traded within a range of 5 pts between an intra-day high of 1537.9 and a low of 1532.9, KLCI ended 0.04-pt lower at 1537.1 as sentiment turned cautious amid COVID-19 outbreak and ongoing busy reporting season. Trading volume decreased to 2.78bn shares worth RM2.06bn as compared to Monday’s 2.91bn shares worth RM1.90bn. Market breadth was negative with 254 gainers as compared to 598 losers.

A day after retreating due to Apple’s revenue guidance warning, the Dow turned 116 pts higher at 29348 as optimism that China would take more measures to prop up its economy outweighed fears about the economic fallout of the COVID-19. Sentiment was also supported by Fed Jan minutes showed that officials believe the US economy appeared stronger-than expected in late January and Fed’s stance to act if needed as it calls the coronavirus a ‘new risk to global growth outlook’.

TECHNICAL OUTLOOK: KLCI

Following the double top patterns, KLCI tumbled 6.2% from 1617 (30 Dec) to 1517 (3 Feb), violating the neckline support of 1548. Although rebounding 2.6% or 40 pts to 1557 (10 Feb), the momentum tapered off as the index continued its downtrend to end at 1537.1 yesterday, In wake of the flattish indicators, KLCI is expected to lock in consolidation mode with key supports at 1521 (lower BB) and 1517. Conversely, only a strong breakout above the support turned-resistance 1548 will spur KLCI to refill 1558/1568 gap (28 Jan) and advance further towards 1577 (100D SMA) and 1600 territory.

Given the COVID-19 threatened to become a pandemic that thwarts global growth and flags recession fears, KLCI is likely to lock in consolidation mode during the busy Feb reporting season, ahead of the outcome from PH Presidential council meeting (21 Feb) to discuss the transition plan for the post of prime minister as well as stimulus measure announcement by the government on 27 Feb.

TECHNICAL OUTLOOK: DOW JONES

As long as the Dow is able to maintain its composure above 50D SMA near 28757 levels, we remain optimistic the benchmark to advance further towards our envisaged 30000 upper channel resistance in mid to long term. However, as the MACD indicator has flashed a potential bearish divergence that may trigger interim profit taking pullbacks amid overbought stochastic oscillator. Key supports are located at 29000/28700/28300 zones.

In the near term, investors will continue to assess the real impact of the coronavirus outbreak, which may significantly weaken a global economy that was already in a precarious position and may trigger a serious reckoning for frothy financial markets. Nevertheless, US investors found comfort in recent Fed statement, better-than-expected earnings reports and a signal that the Fed stands ready to act if needed. We see the Dow to trend range bound within the 28700 - 30000 band.

Source: Hong Leong Investment Bank Research - 20 Feb 2020