Index may revisit 1,710 and 1,727

by **Cals** Sat 12 Mar 2016, 00:15

Index may revisit 1,710 and 1,727

By Lee Cheng Hooi / The Edge Financial Daily | March 11, 2016 : 11:03 AM MYT

This article first appeared in The Edge Financial Daily, on March 11, 2016.

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US equity markets inched up on Wednesday, paced by sluggish bank and consumer stocks as investors pondered whether central banks’ stimulus efforts will be enough to bolster global growth. Energy stocks like Chevron Corp advanced after weekly supply data boosted speculation that a steeper-than-forecasted decline in gasoline supplies will lead to a drawdown in crude oil’s glut. The S&P 500 Index rose 10 points to 1,989.26, while the Dow gained 36.26 points to end at 17,000.36.

In Malaysia, the FBM KLCI moved in a narrower range of 33.27 points for the week with higher volumes of 1.75 billion to 2.44 billion shares traded. The index closed at 1,690.91 yesterday, up 4.56 points from the previous day as blue chip stocks like Astro Malaysia Holdings Bhd, Hong Leong Financial Group Bhd, Malayan Banking Bhd, Petronas Chemicals Bhd and UMW Holdings Bhd caused the index to surge on buying activities. The ringgit gained slightly against the US dollar at 4.0960 as Brent crude oil rose to US$39.80 (RM163.97) per barrel.

The index rose on a rally from the 801.27 low (October 2008) to its 1,896.23 all-time high (July 2014) and it represents an extended Elliott Wave “flat” rebound in a “pseudo-bull” rise completed. The next few months’ index price movements since July 2014 comprised key swings of 1,671.82 (low), 1,867.53 (high), 1,503.68 (low) and 1,727.41 (high).

The index’s decline from 1,867.53 (April 2015) to 1,503.68 (August 2015) was in a perfect 1.62 ratio of the initial down-thrust from the high of 1,896.23 (July 2014) to the 1,671.82 low (December 2014). The subsequent rebound from the 1,503.68 low stalled at the 1,727.41 high, which is also a perfect upward 62% retracement of the 1,867.53 to 1,503.68 move.

The index’s next two minor swings comprised a minor low of 1,622.84, which then stalled at the 1,706.25 minor high on Dec 30, 2015. Its persistent weaker price action in January 2016 was in tandem with the softer tone for global markets and the index troughed at 1,600.92 on Jan 21, 2016. The index’s next rebound from the 1,600.92 low surged to a new recent high of 1,710.20 on Monday.

The index’s daily signals are mainly positive, with its Commodity Channel Index (CCI), Directional Movement Index (DMI), oscillator and moving average convergence divergence (MACD) indicators showing chart buy signals. As such, the index’s firm support levels are seen at the 1,631, 1,676 and 1,690, while obvious profit-taking at the resistance areas of 1,710, 1,727 and 1,744 may cap any index rebound.

The FBM KLCI’s 18-day and 40-day simple moving averages (SMA) depict an emerging trend for its short-term daily chart. The index’s price bars are finally above the 50-day and 200-day daily SMA, and this depicts a better upward phase for the FBM KLCI in the medium to longer term too.

Due to the upbeat tone for the FBM KLCI, we are recommending a chart “buy” on Guinness Anchor Bhd (GAB). GAB produces, packages, markets and distributes beer. A check on the Bloomberg consensus reveals that nine research houses cover this stock, with nine “buy” calls.

Maybank Investment Bank Bhd’s analyst upgraded GAB recently to “buy” with a discounted cash flow target price of RM15. Its six months financial year 2016 (6MFY16) results were above expectations on better-than-expected cost efficiencies, marginally lower tax rates and higher sales. GAB declared an interim dividend of 20 sen and a bumper special dividend of 30 sen to commemorate its 50th jubilee. GAB remains a defensive stock with an attractive dividend yield of 7.8% (FY16 estimate).

GAB’s chart trends on the daily, weekly and monthly time frames are firmly up. From a weekly Wave-3 high of RM19.72, its major weekly Wave-4 low of RM11.35 was formed in October 2014. Since that RM11.35 low, GAB rose to its recent March 2016 high of RM14.80.

As its price broke above its recent key critical resistance levels of RM13.01 and RM14.46, look to buy GAB on any dips to its support areas as the moving averages depict a very firm short- to long-term uptrends for this stock. The daily, weekly and monthly indicators (like the CCI, DMI, MACD, oscillator and stochastic) have issued clear “buy” signals and now show firm and obvious indications of GAB’s eventual rise to much higher levels.

It would attract firm buying activities at the support levels of RM13.01, RM14.46 and RM14.66. We expect GAB to witness some mild profit-taking activities at its resistance levels of RM15.30, RM17.17 and RM19.72. Its clear upside targets are located at RM16.18, RM17.50 and RM21.45.

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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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