Rebounding into a wall of foreign selling

by **Cals** Fri 06 Sep 2013, 11:25

Rebounding into a wall of foreign selling
Business & Markets 2013
Written by Lee Cheng Hooi
Friday, 06 September 2013 10:37

A better auto sales number in the US in August lifted American markets recently. Despite the spectre of a swift military strike against Syria, US and Asian markets rebounded recently on bargain hunting. The US rose to a better close, with the Dow Jones Industrial Average settling at 14,930.87, up 96.91 points on Wednesday.

The FBM KLCI traded in a sideways range of 25.37 points for the week with lower volumes of 1.08 billion to 1.59 billion shares done. The index closed at 1,720.97 on Sept 5, up 4.21 points from the previous day as blue-chip stocks like PETRONAS DAGANGAN BHD [], PETRONAS GAS BHD [], PPB GROUP BHD [], PUBLIC BANK BHD [] and SapuraKENCANA PETROLEUM BHD [] caused the index to rise on minor low volume local nibbling.

The KLCI’s recent key swings were 1,590.67 (low), 1,699.68 (high), 1,597 (low), 1,664.39 (high), 1,613.94 (low) and 1,826.22 (high). We then saw a partial filling of the gap at the 1,723.74 low (June 25). The index’s next key swing and secondary high was sighted at 1,811.65 (July 26). The index has plunged since that 1,811.26 high below its critical 1,723.74 support to a fresh recent low of 1,660.39 (on Aug 28, 2013).

The current rebound rally from the 801.27 low (October 2008) to the 1,826.22 all-time high represents an extended Elliott Wave “Flat” rebound in a “Pseudo-Bull” rise completed. Tactically, investors will liquidate on rallies due to the index’s ample long-term bearish divergence signals (which have been overextended for 59 months) as well as its emerging negative signals.

Its simple moving averages (MA) depict a single time frame daily downtrend for now with an obvious “Dead MA Cross” on the 20- and 50-day SMA. Due to its negative signals, we believe investors should adopt a risk-off investment philosophy as the index remains risky, volatile and weaker for now. The index’s daily CCI, DMI, MACD and Oscillator indicators turned negative recently in reaction to the weaker regional currencies and equity markets.

As such, the index’s weaker support levels are seen at 1,590, 1,660 and 1,702, while the resistances of 1,720, 1,737 and 1,811 will cap any price rebound. Using the Fibonacci retracement analysis, 1,730.83, 1,735.98, 1,747.45 and 1,753.82 would be formidable barriers to surpass on any rebound move. Our eventual downside Elliott Wave targets for the index are now at 1,636, 1,611 and 1,595.

Currently, we believe that a larger cash pile would be wiser for investors and fund managers in the face of adversity and the typical autumn equity malaise. Keeping a more defensive posture would also be good in September and October and investors should only bargain hunt if and when the vicious price turbulence has settled down.

Due to the bearish tone of the KLCI, we are recommending a chart “sell” on CARLSBERG BREWERY MALAYSIA BHD []. It recently announced its results for the second quarter ended June 30 of 2013 financial year (2QFY13), which saw profit after tax falling 18% year-on-year (y-o-y) due to lower sales volume from the uncertain macroeconomic environment and the resultant softening of demand as well as higher revenue last year due to the Euro 2012 football tournament.

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The weaker first half (1H) results for FY13 did not even make up 50% of our analysts and consensus’ estimates which historically make up 51% to 52% of full year numbers. Our fundamental analyst lowered Carlsberg from a “buy” to a “hold” call recently on weaker demand growth expectations. As a slight reprieve, Carlsberg declared an interim single-tier dividend per share of five sen which goes “ex” on Sept 25.

Maybank-IB currently has a “hold” call on Carlsberg with a RM13.60 target price. A check on Bloomberg consensus reveals there are 11 research houses that have coverage on the stock. Of these, two have a “buy” call and there are three “sell” and six “hold” calls.

Carlsberg’s share price made an obvious plunge since its weekly Wave-5 and all-time high of RM17.06 on May 31, 2013. Since that significant high, Carlsberg fell to its recent Augus 2013 low of RM12.60.

After the RM17.06 high, its chart has moved into daily and weekly downtrends to its recent low of RM12.60. As it broke above its recent key critical supports of RM15.10 and RM14.36, look to sell Carlsberg on any rallies to its resistance areas as the moving averages depict very firm short to medium term downtrends for this stock.

The daily and weekly indicators (like the CCI, DMI, MACD and Stochastic) are firmly negative and now depict the obvious indications of Carlsberg’s eventual move to much lower levels. We expect it to remain very weak towards its support levels of RM10.14, RM11.74 and RM12.60. It will attract major liquidation activities at the resistance levels of RM12.62, RM14.36 and RM15.10. Its downside targets are now located at RM11.00, RM9.42 and RM7.75.

Lee Cheng Hooi is head of retail research at Maybank Investment Bank. The views expressed in the article are the opinions of the writer and should not be construed as investment advice. Please exercise your own judgment or seek professional advice for your investment decisions. Technical report appears every Wednesday and Friday.

This article first appeared in The Edge Financial Daily, on September 06, 2013.