KLCI may push above 1,839.26 today

by **Cals** Fri 07 Mar 2014, 10:13

Business & Markets 2014

Written by Lee Cheng Hooi

Friday, 07 March 2014 09:26

ASIAN markets were broadly higher yesterday as tensions in Ukraine continued to ebb. Markets rose as some short-covering emerged after the risk of an outright war between Ukraine and Russia was averted.

With a weaker yen against the US dollar, the Nikkei led Asia’s advance by about 1.6% gain yesterday. Meanwhile American markets remained lacklustre ahead of their latest jobs report due out later today. The SP 500 index inched down a mere 0.1 of a point to close at 1,873.81 points while the Dow lost 35.7 points to end at 16,360.18 on Wednesday.

The FBM KLCI traded in a narrow range of 25.09 points for the week with volumes of 2.1 billion to 2.4 billion shares done. The index closed at 1,838.69 yesterday, up 9.58 points from the previous day as blue-chip stocks like British American Tobacco (M) Bhd, Felda Global Ventures Holdings Bhd, Kuala Lumpur Kepong Bhd, MISC Bhd and PPB Group Bhd caused the index to rise yesterday.

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 index price movements 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) and 1,769.80 (low).

The index’s daily signals (CCI, DMI, MACD, Stochastic and Oscillator) are all positive. As such, its obvious support levels are seen at 1,769, 1,813 and 1,838, while the resistance areas of 1,839, 1,868 and all-time high of 1,882 may witness some heavy profit-taking activities.

Our rebound retracement target of 1,839.26 (62% level) has capped the index in the short term. As the index would penetrate above this key level very soon with high volumes, investors can be more certain of an eventual test of the 1,882.2 high once again.

Its simple moving averages (MA) depict a triple timeframe for its daily, weekly and monthly charts. Due to its firmer chart signals, we believe investors may adopt a “Nibble on Dips” philosophy for the KLCI .

Due to the optimistic tone of the KLCI, we are recommending a chart “buy” on Ornapaper Bhd (Orna), which broke out of its rangebound zone to record a new 52-week high at the beginning of February 2014. It then consolidated as investors awaited the company’s results for the fourth quarter ended Dec 31 of financial year 2013 (4QFY13).

It announced its results on Feb 27 and its good performance caused the stock to continue on its upward trajectory. For 4QFY13, Orna’s group sales rose 14.9% on strong demand for its products. Profit before tax went up 308% year-on-year for the quarter.

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A check on Bloomberg shows that no research house has coverage on this stock. The stock is currently trading at a low historical price-earnings ratio of 11.2 times and a cheap price-to-book value of 0.81 times.

Orna’s chart trends on the daily, weekly and monthly timeframes are very strong. Its share price made an obvious surge since its weekly Wave-2 low of 41 sen in May 2012. Since that 41 sen low, Orna surged to its recent February 2014 high of RM1.42.

On its monthly chart, Orna has formed a major rounding bottom formation since its listing in 2003. Its chart has moved into very strong daily, weekly and monthly uptrends to its recent February 2014 high of RM1.42.
As it broke above its recent key critical resistance levels of 77 sen and 88 sen, look to “buy” Orna 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 (like the CCI, DMI and Oscillator) are very positive and now depict the obvious indications of Orna’s eventual move towards much higher levels.

We expect Orna to remain very well sought after on dips towards its support levels of 77 sen, 88 sen and RM1.24. It may attract minor profit-taking activities at the resistance levels of RM1.42, RM1.46 and RM1.69. Its upside targets are now located at RM1.47, RM1.74, RM2.30 and RM2.65.

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.

This article first appeared in The Edge Financial Daily, on March 07, 2014.