A softer phase may emerge

by **hlk** Fri 01 Nov 2013, 12:13

Business & Markets 2013
Written by Lee Cheng Hooi
Friday, 01 November 2013 09:57
A + A - Reset
AT this week’s Federal Open Market Committee meeting, the US Federal
Reserve said the economy showed signs of underlying strength. Despite that
and its US$85 billion (RM269 billion) monthly bond buying programme, markets
in America fell as investors expect some tapering to happen by December 2013
at the earliest. The SP500 declined 8.64 points to close at 1,763.31 points
while the Dow Jones Industrial Average fell 61.59 points to end at 15,618.76 as
a result of profit taking that set in on Wednesday night.
The FBM KLCI traded in a downward range of 17.23 points for the week with
volumes of 1.7 billion to 1.88 billion done. The index closed at 1,806.85
yesterday, down 10.53 points from the previous day as blue-chip stocks like
British American Tobacco (M) Bhd, CIMB Group Holdings Bhd, Genting Bhd,
KLK Bhd and UMW Holdings Bhd caused the index to decline on foreign profit
taking activities.
The index rose on a rally from the 801.27 low (October 2008) to the 1,826.22
all-time high (May 2013) and it represents an extended Elliott Wave “Flat”
rebound in a “Pseudo-Bull” rise completed. The index price movements over
the next few months since May 2013 were trapped in a rangy consolidation
with key swings of 1,723.74 (low), 1,811.65 (high), 1,660.39 (low), 1,805.15
(high) and 1,759.66 (low).
The index’s daily CCI, DMI, MACD and Oscillator indicator have remained
positive recently. However, the Stochastic just turned negative on Tuesday. As
such, the index’s weaker support levels are seen at 1,764, 1,777 and 1,795,
while the firm resistance areas of 1,806, 1,822 and 1,826 will witness heavy
profit taking.
Its simple moving averages (MA) depict a triple time frame (daily, weekly and
monthly) uptrend for now. Due to its positive signals, we believe investors may adopt a trading philosophy as the KLCI remains at fairly
lofty levels with bearish divergent signals for now. As such, profit taking on index components as well as small to mid caps may persist for
the short term.
Due to the lofty tone of the KLCI, we are recommending a chart “sell” on UEM Sunrise Bhd. Under Budget 2014, the government
introduced several cooling measures to tighten the property sector, which were hard hitting in our analyst’s view as she did not expect the
measures to be announced and implemented collectively.
Our analyst expects property demand to weaken for projects in Iskandar Malaysia that had been enjoying brisk sales to foreigners. The
new measures are the considerable jump in real property gains tax alongside a higher minimum price for property purchases by
foreigners and the discontinuation of DIBS (developer interest bearing scheme). The announcement of the collective cooling measures will
negatively impact developers with DIBS such as UEM Sunrise (with more than 70% of remaining GDV from Iskandar Malaysia).
A check on Bloomberg consensus reveals that 19 research houses have coverage on the stock. Of the 19 research houses, there are 10
“buy” calls, six “hold” and three “sell” calls. The stock is now trading at a historical price-earnings ratio of 16.9 times and a price-to-book
ratio of 1.9 times. UEM Sunrise’s share price made an obvious decline since its weekly
Wave-C high of RM3.66 of May 2013. Since that RM3.66 high, it fell
to its recent August 2013 low of RM2.22 in a weekly Elliott Wave (EW)
3 decline.
UEM Sunrise’s chart has moved into strong daily and weekly
downtrends to its recent low of RM2.22. As it broke above its recent
key critical supports of RM2.65 and RM2.42, look to sell UEM Sunrise
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, Stochastic
and Oscillator) are firmly negative and now depict the obvious
indications of UEM Sunrise’s eventual move to much lower levels. We
expect it to remain very weak towards its support levels of RM1.98,
RM2.22 and RM2.32. It will attract major selling at the resistance
areas of RM2.34, RM2.65 and RM2.73. Its downside targets are now
located at RM1.48, RM1.98 and RM2.23.
Lee Cheng Hooi is the regional chartist at Maybank Kim Eng. 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