KLCI may retest the 1,896 level

by **Cals** Fri 22 Aug 2014, 12:40

Business & Markets 2014

Written by Lee Cheng Hooi

Friday, 22 August 2014 09:51

STOCK markets in the US ended mixed on Wednesday as the minutes of the Federal Reserve’s July meeting indicated that the central bank would support the economy amid uneven gains in the job market. The SP500 Index gained 4.91 points to close at 1,986.51 while the Dow Jones Industrial Average rose 59.54 points to end at 16,979.13 in quiet trading.

In Malaysia, the FBM KLCI traded in a wider range of 19.43 points for the week with higher volumes of 2.99 billion to 7.67 billion shares traded. The index closed at 1,874.81 yesterday, down 4.08 points from the previous day as blue-chip stocks such as Kuala Lumpur Kepong Bhd, British American Tobacco (M) Bhd, IOI Corp Bhd, Petronas Dagangan Bhd, Genting Bhd and PPB Group Bhd caused the index to inch down on some profit-taking activities.

The index rose on a rally from the 801.27 low (October 2008) to the previous 1,826.22 all-time high (May 2013) and it represented an extended Elliott Wave “Flat” rebound in a “Pseudo-Bull” rise completed. The price movements on the index in the next few months following 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), 1,759.66 (low), 1,882.20 (high), 1,769.80 (low), 1,838.69 (high), 1,802.88 (low), 1,896.23 (high) and 1,837.28 (low).

The index’s daily signals are mainly positive, as the CCI, DMI, MACD and Stochastic have issued “buy” signals. However, its Oscillator has remained negative so far. As such, the index’s obvious support levels are seen at 1,837, 1,858 and 1,871 points, while the resistance areas of 1,874 and 1,882 and all-time high of 1,896 will offer heavy liquidation and obvious profit-taking activities.

The KLCI’s simple moving averages depict a marginal uptrend for its weekly and monthly charts. Its daily chart is currently neutral. Due to its mixed chart signals, we believe investors will adopt a “range trading” tone for the KLCI. With the very obvious bearish divergence signals on its indicators, there are diminished chances of significant upside for the index currently.

The recent rise from 1,837.28 is viewed as a price rebound from oversold conditions. As such, the index may retest the 1,896.23 level in the medium term.

Due to the rebound tone for the KLCI, we are recommending a chart “buy” on OKA Corp Bhd, whose share price had risen persistently on its improved quarterly results as well as its announcement of a proposed bonus issue on Aug 13, 2014.

OKA reported higher revenue for its financial year 2014 (FY14) ended March 31 while profit before tax expanded significantly. The improved profitability was attributed to higher volume, better margins and enhanced production output in the fourth quarter (4QFY14) as compared to the corresponding quarter in the preceding financial year.

A check of Bloomberg consensus reveals that only one research house has coverage on OKA and it has a “call” call. The stock is currently trading at an attractive price-earnings ratio of 10.7 times and at a marginally pricey profit-to-book value ratio of 1.3 times. The reported shareholding changes on Bloomberg did not reveal any major transactions over the last month.

Maybank-IB initiated chart coverage on OKA in December 2013 at 53 sen. Since then, its chart trend on the daily, weekly and monthly time frames has turned upwards strongly. Its share price has made a fine surge since its monthly Wave-2 low of 23 sen in December 2011.

Since that 23 sen low, OKA rose to its recent August 2014 high of RM1.23. OKA’s chart is in very strong daily, weekly and monthly uptrends with its move to the recent August 2014 high of RM1.23. As it broke above its recent key critical resistance levels of 94 sen and RM1.04, look to buy OKA on any dips to its support areas as the moving averages depict very firm short- to medium-term uptrends for this stock.

The daily, weekly and monthly indicators (such as the CCI, DMI, MACD, Oscillator and Stochastic) have issued “buy” signals and now depict very firm indications of OKA’s eventual move towards much higher levels. It would attract very firm buying activities at the support levels of 94 sen, RM1.04 and RM1.19.

We expect OKA to attract light profit-taking towards its resistance and all-time high of RM1.23. Its upside targets are located at RM1.30, RM1.62 and RM2.00.

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 decisions. Technical report appears every Wednesday and Friday.

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This article first appeared in The Edge Financial Daily, on August 22, 2014.[/size]