Prevalent index weakness
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Prevalent index weakness
Prevalent index weakness
By Lee Cheng Hooi / The Edge Financial Daily | June 17, 2016 : 11:02 AM MYTThis article first appeared in The Edge Financial Daily, on June 17, 2016.
US equity markets ended slightly weaker despite a steady interest rate policy that emerged from the Federal Reserve’s June Federal Open Market Committee (FOMC) meeting that ended on Wednesday. Market expectations for an interest rate hike dwindled ahead of the FOMC meeting amid a lacklustre May job report and concerns about a British exit from the European Union. The Dow Jones Industrial Average fell 34.65 points to 17,640.17, while the S&P 500 Index inched down 3.82 points to end at 2,071.5.
The FBM KLCI plunged despite a narrower range of 20.8 points traded for the week with sluggish volumes of 1.46 billion to 1.56 billion dealt. The index fell 13.06 points and closed at 1,614.90 yesterday from the previous day as blue-chip stocks like British American Tobacco (M) Bhd, CIMB Group Holdings Bhd, Genting Bhd, MISC Bhd and Petronas Chemicals Bhd caused the index to fall on major selling activities. The ringgit was slightly weaker against the US dollar at 4.1000 as Brent crude declined to US$46.75 (RM191.68) per barrel.
The FBM KLCI 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), 1,727.41 (high), 1,600.92 (low) and 1,729.13 (high).
The index managed to surpass the key 62% Fibonacci retracement (FR) level of 1,728.54 to a recent high of 1,729.13 on April 14, 2016. Very heavy liquidation at that level had caused the index to decline and move into a downward phase for its 20-day and 50-day simple moving averages (SMA) with a “Dead Cross” on its short-term daily chart.
The index’s price bars are now below the 50-day and 200-day daily SMA and this depicts a downward phase for the FBM KLCI in the medium to longer term. Medium- to longer-term prospects look bleaker as the weekly 50-day and 200-day SMA have also issued a “Dead Cross” in June 2016. Any bargain hunting on the index will be met by heavy longer-term selling on rallies.
The index’s daily signals are weaker, with all its Commodity Channel Index (CCI), Directional Movement Index (DMI), oscillator and stochastic depicting very obvious sell signals. The moving average convergence divergence (MACD) remains positive for now. As such, the index’s weaker support levels are seen at 1,567, 1,595 and 1,600, while very heavy liquidation at the resistance areas of 1,614, 1,664 and 1,729 will cap the index’s rise. The daily downside targets for the index are located at 1,596, 1,569 and 1,527. All rebounds on the index to its 23%, 38%, 50% and 62% FR clusters of 1,666.69, 1,670.52, 1,679.62 and 1,684.35 would be met with very obvious longer-term selling and liquidation activities.
Due to the very weak tone for the FBM KLCI, we are recommending a chart “sell” on UEM Edgenta Bhd. UEM Edgenta is a diversified company that has interests in asset development and asset management consultancy, infrastructure maintenance, integrated facilities management, and also develops and manages properties.
A check on the Bloomberg consensus reveals that three research houses cover this stock, with two “hold” and a “buy” calls. Maybank-IB does not cover UEM Edgenta on a fundamental basis. Its chart trend on the daily and weekly time frames is firmly down. From a daily Wave C and recent high of RM3.98 (May 2016), its prices have plunged 19.1% on the daily and weekly time frames to a daily Wave 3 low of RM3.22 (June 2016).
As prices broke above their recent key critical support levels of RM3.56 and RM3.61, look to sell UEM Edgenta on any rallies to its resistance areas as the moving averages depict a very firm short- to medium- term downtrends for this stock. The daily indicators (like the CCI, DMI, MACD and oscillator) have issued clear sell signals and now show firm and obvious indications of UEM Edgenta’s eventual plunge towards much lower levels.
It would attract very weak buying activities at the support levels of RM2.96, RM3.16 and RM3.22. We expect UEM Edgenta to witness very heavy activities at its resistance levels of RM3.27, RM3.56 and RM3.61. Its clear downside targets are located at RM2.87, RM2.26 and RM2.13.
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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 judgement or seek professional advice for your investment decisions. Technical reports appear every Wednesday and Friday. [/size]
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