Re-testing 1,800 and 1,826 levels soon

by **Cals** Fri 19 Jul 2013, 10:58

Re-testing 1,800 and 1,826 levels soon
Business & Markets 2013
Written by Lee Cheng Hooi
Friday, 19 July 2013 09:59

US stocks are on the rise this week as US Federal Reserve chairman Ben Bernanke has said the central bank’s asset purchases are not on a pre-set course. He said these bond purchases (or quantitative easing) could be reduced more quickly or expanded as economic conditions warrant.

The Fed reported that the US economy had maintained a “modest to moderate pace” of growth in recent weeks and residential real estate and CONSTRUCTION [] activity had increased at a moderate to strong pace in all reporting districts. The Dow rose by 18.67 points to 15,470.52 on Wednesday.

In Malaysia, the FBM KLCI traded in a narrow upward range of 10.72-points for the week with modestly high volumes of 1.12 billion to 1.75 billion done. The index closed at 1,791.54 yesterday, up 2.88 points from the previous day as blue-chip stocks like MALAYAN BANKING BHD [], Maxis Bhd, MISC BHD [], TENAGA NASIONAL BHD [] and UEM SUNRISE BHD [] caused the index to rise on some bargain hunting activities.

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The KLCI’s recent key swings were 1,590.67 (low), 1,699.68 (high), 1,597.00 (low), 1,664.39 (high), 1,613.94 (low) and 1,826.22 (high). The index surged to a fresh post-13th general election (GE13) all-time high of 1,826.22 on May 6. From the closing of 1,694.77 on May 3 (just before GE13), there now exists two obvious gap-up areas of 1,712.03 and 1,718.44 on the chart. The break below the critical support of 1,764.97 (on June 13) opened up possibilities for the downward gap filling exercise. However, the price gap was only not entirely filled with the decline to the 1,723.74 low (June 25). Prices have crept up since the 1,723.74 low but have yet to breach the 1,800 psychological level.

The current rebound rally from the 801.27 low (October 2008) to the 1,826.22 all-time high represents an extended Elliott Wave “Flat” rebound in a “Pseudo-Bull” rise. Tactically, investors may liquidate on rallies due to the index’s ample long-term bearish divergence signals as well as the gap-up moves mentioned.

Continue to take profit on any price rallies, as the divergent longer-term technical signals are very obvious and over-extended for 57 months now. Overlapping support and resistance levels at 1,664.39 and 1,635.55 also indicate the “bluff” nature of this current index rise.

Its moving averages depict a triple time frame uptrend (daily, weekly and monthly). Despite its positive signs, we believe investors should take a short-term investment philosophy as the index remains benign at lofty and overbought levels for now. Its daily CCI, DMI, Oscillator and MACD indicators have remained positive for now.

The index’s key support levels are seen at the 1,723, 1,771 and 1,791 levels, while the resistances of 1,795 and 1,800 as well as the all-time high of 1,826 will offer heavy selling activities.

Due to the firmer tone of the KLCI, we are recommending a “buy” on TAS Offshore Bhd. TAS has plans to diversify into vessel chartering for the domestic oil and gas industry. It is currently looking for opportunities to build offshore supply vessels for charter. Its management foresees increasing demand for such vessels in view of the surge in oil and gas activities in the domestic industry.

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TAS has outsourced the construction of the vessels to an established shipyard in China as its shipbuilding facilities are unable to cope with the high number of orders. As at April this year, the company had shipbuilding contracts worth about RM382 million.

While remaining positive on securing more contracts for offshore vessels, its management believes the demand for tugboats from Indonesia was sustainable, based on orders received from companies related to the coal and iron ore industries.

Maybank-IB has no fundamental coverage on TAS. A check on Bloomberg consensus reveals that there are currently no research houses with coverage on the stock. TAS is currently trading at a very low price-earnings ratio of 6.8 times with an indicative dividend yield of 2.22%.

TAS’ share price has made an obvious surge since its daily Wave 5 low of 35 sen on April 3 this year. Since that major recent low, TAS has surged on a firm daily upward Wave 3 move to its recent high of 69 sen in mid-July 2013.

TAS has moved into a daily uptrend since that low of 35 sen. As it broke above its recent key critical resistance levels of 53 sen and 62 sen, look to buy TAS on any dips to its support areas as the daily moving averages (with a Golden SMA Cross) depict very firm short- to medium-term uptrends for this stock.

The daily indicators (like the CCI, DMI, MACD, Oscillator and Stochastic) are firmly positive and now depict the obvious indications of TAS’ eventual surge to much higher levels.

We expect TAS to remain very firm towards its support levels of 53 sen, 62 sen and 66 sen. It will attract some selling activities at its resistance levels of 69 sen, 83 sen and 89 sen. Its upside targets are now located at 81 sen, 92 sen and 97 sen.

Lee Cheng Hooi is head of retail research at Maybank Investment Bank. 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.

This article first appeared in The Edge Financial Daily, on July 19, 2013.