Bears loom over technical outlook

REVIEW:

The 1,680-point support on the FBM KLCI, already shaky over previous weeks as a litany of negatives piled up on gobal equities, finally gave way on Monday.

With the short-term daily index chart forming a descending triangle, it seemed only a matter of time, short of any positive catalysts, that the support would falter and the FBM KLCI went into a steep decline.

Coming fresh into the week, there was mounting evidence that the ongoing Sino-US trade war had already made a negative impact on global growth. Weak Chinese trade data for November pointed to slower global and domestic demand, reflecting a slowing economy.

The arrest of a Huawei top executive continued to cause anxiety among investors as it was seen to threaten future US-China trade talks.

Meanwhile, Beijing had attempted to shore up confidence in the trade talks but its arrest of two Canadians – one a former diplomat – on unknown charges lent an air of unease over the geopolitical arena.

Nevertheless, both US and Chinese authorities had pledged to keep such political disputes separate from the trade issue at hand.

Over in Europe, the Brexit tussle was heating up as Prime Minister Theresa May delayed a vote for a Brexit deal in Parliament. By midweek, any chance for a deal turned further south as May was subjected to a vote of no confidence that sought to displace her as the head of the Tories.

While she survived the vote 200-117, it had become clear that she was presiding over a split party and that the chances for a disorderly no-deal Brexit grew ever closer.

Starting the week on a sour note, the FBM KLCI, which was sitting squarely on the support at the previous week’s close, fell through by 17.21 points to 1,663.31.

The selloff would continue into Tuesday with highly negative sentiment taking over global markets. The breach on the FBM KLCI chart and the declining momentum pulled the index down a further 10.68 points to the following support at 1,652.63. Some relief came at the midweek as Trump set a conciliatory tone with China during his interview with Reuters, pledging to intervene in the US Justice Department’s case against Huawei’s Meng Wanzhou if it should come in the way of a trade agreement with China.

Oil prices climbed over 1% on hopes that the trade tensions would ease even as Opec agreed to supply cuts in 2019.

This set the stage for a rebound on Bursa Malaysia. The FBM KLCI gained 10.64 points to 1,663.27 as banking stocks rallied, given the commitment of Trump’s interview.

The strongest evidence that China was putting in place policies to end the trade war came the next day as sources revealed that Beijing was considering a delay of its “Made in China 2025” programme, slated as an effort to dominate the high-tech manufacturing sector.

If implemented, China would reel in its aggressive plan to develop new technologies and capitulate to Trump’s agenda for the US to maintain its dominance in the sector.

The move spurred markets ahead, giving the FBM KLCI a 12.73-point gain to 1,676.

Yesterday, the rally lost steam on weak Chinese economic data and profit-taking, reflecting the frayed nerves of investors after a year of brutal volatility. The FBM KLCI fell 14.04 points to 1,661.96.

Statistics: Week-on-week, the major index was down 18.58 points at 1,661.96. Total turnover for the week stood at 9.21 billion shares amounting to RM7.85bil compared with 10.58 billion shares worth RM9.26bil over the last trading week.

Outlook: The FBM KLCI’s low of 1,652 on Tuesday took the index to its lowest since Jan 5, 2017. While the breach of the 1,680 support was a decidedly bearish event, news coming out of Washington and Beijing that they are working towards a trade deal by March 1 halted the selloff, and is giving investors some breathing space in the final weeks of the year.

Still, gains are capped by the mounting evidence that the trade war is negatively impacting China’s economy – consumer spending and loans have been slowing.

Investors are still craning their necks for more concrete evidence that the trade war is wrapping up in early 2019 but until then the FBM KLCI is expected to continue moving in consolidation mode with a downside bias.

The short-term descending trend line remains intact, and while the index may trade within the range of 1,652 and 1,680 over coming sessions, the downwards pull towards a lower range of 1,609 and 1,652 remains an ongoing risk.

The slow-stochastic shows improving momentum, suggesting that a rebound towards the 1,680 mark will ensue despite yesterday’s profit-taking.

With regards to major events in the pipeline next week, there will be 2018’s last US Fed monetary policy meeting, which will likely see a final 0.25% interest rate hike for the year. This has been largely priced in and should not come as a big shock to investors.