Index may inch up further

by **Cals** Mon 18 Apr 2016, 01:19

Index may inch up further

By Lee Cheng Hooi / The Edge Financial Daily | April 15, 2016 : 11:27 AM MYT

This article first appeared in The Edge Financial Daily, on April 15, 2016.

[You must be registered and logged in to see this image.]

US equity markets gained on Wednesday, after JPMorgan Chase & Co announced better-than-expected results. The release of upbeat China trade data also offered hope that there is an improvement in its economic outlook. With the better US earnings outlook and global economic data, the Dow Jones Industrial Average surged 187.03 points to 17,908.28, while the S&P 500 Index gained 20.7 points to end at 2,082.42.

In Malaysia, the FBM KLCI moved in a very narrow range of 19.71 points for the week with marginally higher volumes of 1.50 billion to 1.85 billion shares traded. The index closed at 1,723.78 yesterday, up 0.67 points from the previous day as blue-chip stocks such as CIMB Group Holdings Bhd, Hong Leong Financial Group Bhd, KLCCP Stapled Group, MISC Bhd, Petronas Gas Bhd and RHB Capital Bhd caused the index to rise in nibbling activities. The ringgit remained steady against the US dollar at 3.8930 despite Brent crude rising to US$42.60 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 this represented 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), 1,727.41 (high) and 1,600.92 (low).

The index finally managed to surpass the key 62% Fibonacci retracement level of 1,728.54 yesterday. As such, the index’s outlook has improved on the penetration of that key level. The FBM KLCI’s 18-day and 40-day simple moving averages (SMAs) depict an emerging trend for its short-term daily chart. The index’s price bars are finally above the 50-day and 200-day SMAs, and this depicts a better upward phase for the FBM KLCI in the medium to longer term too.

The index’s daily signals are mainly positive, with its Commodity Channel Index (CCI), Directional Movement Index (DMI), oscillator and stochastic indicators showing chart “buy” signals. Its moving average convergence divergence is currently negative. As such, the index’s support levels are seen at 1,676, 1,709 and 1,723 levels, while profit-taking at resistance areas of 1,729, 1,744 and 1,752 may cap the index’s rise.

Due to the firmer tone of the FBM KLCI, we are recommending a chart “buy” on CSC Steel Holdings Bhd. CSC Steel manufactures and markets steel products like steel pipes, cold rolled coils, steel sheets and galvanised steel products. A check on the Bloomberg consensus reveals that no research house covers this stock.

The company announced its quarterly results recently. Although revenue dropped 2.9% year-on-year, its earnings per share improved to 14.75 sen (financial year 2015 [FY15]) from a loss per share of 5.72 sen (FY14). CSC Steel’s current price-earnings ratio and price-to-book value are very decent at low levels of 9.9 times and 0.69 times respectively. Its return on equity stood at 7.3% and its indicative dividend yield is at a very attractive 5.59%. Elsewhere, there was no other significant news on the stock recently.

CSC Steel’s chart trend in the daily, weekly and monthly time frames is firmly up. From a daily Wave-2 low of 92 sen (Oct 6, 2015), its share price has turned up strongly in the daily, weekly and monthly time frames to a recent April 2016 high of RM1.45.

As the share price broke above its recent key critical resistance levels of RM1.26 and RM1.31, look to buy CSC Steel on any dips to its support areas as the moving averages depict a very firm short- to long-term uptrend for this stock. The daily, weekly and monthly indicators (like the CCI, DMI, oscillator and stochastic) have issued clear “buy” signals, and now show firm and obvious indications of CSC Steel’s eventual surge towards much higher levels.

It would attract very firm buying activities at support levels of RM1.26, RM1.31 and RM1.44. We expect CSC Steel to witness some mild profit-taking activities at its resistance levels of RM1.45 and RM1.48. Its clear upside targets are located at RM1.52, RM1.65, RM1.85, RM1.97 and RM2.07.

[size]

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 judgement or seek professional advice for your investment decisions. Technical report appears every Wednesday and Friday.
[/size]