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ASEAN Strategy - Not Time Yet For The Bear


■ We are of the view global equity markets are not starting a major bear market phase.
■ US DJIA could be in a major sideways triangle consolidation phase. Long-term uptrend is still intact.
■ MSCI Asia ex-Japan has reached our target levels. Technical indicators show positive divergence signs, an indication the Index is close to its bottom.
■ Crude oil prices should rebound in the immediate term but see one more new low before prices finally bottom.
■ Hang Seng should find strong support at 18,000 levels.

Bear market or not?
While many are calling for the start of a global equity bear market, our time-cycle analysis only points to a peak in 2017/18. Correction has been deep in most equity indices since the start of the year, and the hardest hit were the China equity markets. So far this month, the Shanghai Composite Index is down around 18%.

US DJIA in triangle consolidation?

The US DJIA continued to hold above its major support trendline this week, which is positive. Pattern-wise, the DJIA looks to be trading in a sideways triangle formation since the May 2015 peak, which is a medium-term bullish signal.


Asia equities to bottom soon

MSCI Asia ex-Japan Index (MAxJ) has reached our 425-450pts target. Daily and weekly technical indicators show positive divergence signs. In addition, the weekly and daily RSI has been oversold for around one month. A rebound is long overdue for the MAxJ.

A little lower for oil
Crude oil prices are already below US$30/barrel and prices might see a little more downside before bottoming. Weekly technical indicators show positive divergence signs, an indication that this downtrend is at the tail-end of the trend. Prices could rebound in the immediate term before they finally bottom in the medium term.

Hang Seng has strong support at 18,000
Hong Kong’s Hang Seng Index should find strong support at the 18,000 level, its longterm support trendline. The monthly RSI is testing the 35pts support level. Over the last 20 years, the Index rebounded once the monthly RSI reaches 35.

Crtical period for gloal equities
The next few weeks will be important for global equity markets. While many are calling for the start of a global equity bear market, our time-cycle analysis only points to a peak in 2017/18. Correction has been deep in most equity indices since the start of the year, and the hardest hit were the China equity markets. So far this month, the Shanghai Composite Index is down around 18%.

FBM KLCI Monthly Chart:
klci monthly chart

FBM SmallCap Index Weekly Chart:
malaysia smallcap index weekly chart


Strong support for KLCI at 1,580
Malaysia’s KLCI has been resilient during this month’s global equity sell-off. Monthly charts point to strong support at the 1,580 level. The support trendline was tested a few months back when the index touched 1,500pts and the KLCI could retest the 1,500 level but this is not likely in the immediate term. The FBM Small Cap's medium-term trend remains up, although the weekly MACD has just turned negative. The index could test the 14,350pts support trendline first before starting its next up-leg.

source: CIMB Research – 22/01/16

FBM KLCI Weekly Recap

Wall Street started the new year on an extremely negative tone after China’s stockmarkets went limit down (by 7.0%) and triggered the circuit breaker two times last week amid its weaker manufacturing data - the Dow declined 276.09 pts to 17,148.94 pts on Monday. The key index, however, stabilised and ended 17,158.66 pts (+9.72 pts) on Tuesday after a rough start. Nevertheless, the selling pressure resumed amid the slump in the crude oil prices, coupled with a weaker Yuan; the Dow lost 252.15 pts to 16,906.51 pts on Wednesday. Further selling activities on the Dow were noted, which sent the key index plunging 392.41 pts and 167.65 pts to 16,514.10 pts and 16,346.65 pts over the next two trading days respectively. On the W.o.W basis, the Dow dived 1,078.58 pts.

Similarly, Malaysia’s stockmarket tanked after trading was halted in China on the back of a 7.0% drop; the FBM KLCI dived 39.14 pts to 1,653.37 pts on Monday.

However, bargain hunting activities emerged and the FBM KLCI rebounded 12.33 pts and 2.27 pts to 1,665.70 pts and 1,667.97 pts on Tuesday and Wednesday respectively. Nevertheless, as the WTI crude oil prices trended below the support of US$33.55, registering the lowest point in eleven years, the FBM KLCI declined 12.84 pts to 1,655.13 pts on Thursday, led by the selling pressure within oil & gas heavyweights like SapuraKencana (-8.4% W.o.W), Petronas Dagangan (-3.5% W.o.W) and Petronas Gas (-3.8% W.o.W). Despite a minor recovery on Friday, the FBM KLCI ended the week lower at 1,657.61 pts, losing 34.90 pts.

fbm klci chart analysis

FBM KLCI Weekly Technical Readings

The weekly MACD Line and weekly MACD Histogram has turned negative, but the weekly RSI is above 50. Meanwhile, the daily MACD Indicator trended negatively last week. The RSI, however, is hovering above 50. 

FBM KLCI Support & Resistance
After the positive momentum attained in the final trading week of 2015, the FBM KLCI gave away most of its gains and dipped below the 1,660 level. With both the weekly and daily MACD Indicators indicating that the negative momentum is picking up, the FBM KLCI may pullback further towards the 1,630 level. However, if the FBM KLCI can surpass the 1,660 level, the next resistance will be envisaged around the 1,700 level.

Moving Forward
As U.S. equities have lost more than 1,000 pts in the first trading week and the RSI is suggesting that both the Dow and S&P 500 are oversold, the indexes may be due for a technical rebound over the near term. Meanwhile, share prices on Bursa Malaysia could trade on a downward bias mode after the sharp decline last week that was led by oil and gas stocks. However, traders could still look for opportunities on construction stocks and export related stocks on the back of weaker Ringgit.

source: Malacca Securities 11/01/16
 

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