KLCI looking to test 1,870 and 1,882 levels

by **Cals** Sat 26 Apr 2014, 18:14

Business & Markets 2014

Written by Lee Cheng Hooi

Friday, 25 April 2014 12:49

NORTH Asia-Pacific stock markets fell slightly yesterday amid reports that China would not meet its official targets for economic expansion. China’s preliminary April Purchasing Managers Index came in at 48.3, indicating contraction.

In the US, markets were also sluggish on Wednesday and traded in tight ranges. The SP 500 index inched down 4.16 points to close at 1,875.39 points while the Dow lost 12.72 points to end at 16,501.65.

The FBM KLCI traded in a wider range of 21.21 points for the week with higher volumes of 2.02 billion to 2.61 billion shares done. The index closed at 1,865.28 yesterday, down 2.07 points from Wednesday as blue-chip stocks like Malayan Banking Bhd, Petronas Dagangan Bhd, Petronas Gas Bhd and PPB Group Bhd caused it to inch down on some profit-taking.

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 price movements in the index 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), 1,769.80 (low), 1,838.69 (high) and 1,802.88 (low).

The index’s daily signals are all positive, with upbeat CCI, DMI, Oscillator, Stochastic and MACD signals. As such, the index’s obvious support levels are seen at 1,802, 1,845 and 1,865, while the resistance areas of 1,870, 1,872 and all-time high of 1,882 will witness some very heavy selling.

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Its simple moving averages depict an emerging uptrend for its daily, weekly and monthly charts. Due to the firmer chart signals, we believe investors will remain on a “buy on dips” mode for the KLCI.

Due to the KLCI’s fine tone, we are recommending a chart “buy” on Muda Holdings Bhd. The group saw its revenue for full financial year 2013 ended Dec 31 (FY13) decline marginally by 4.6% to RM1.04 billion from RM1.09 billion in FY12. The decline was due to a disposal of a 22.5% equity interest in KL Resources Pte Ltd from the trading division, which was de-recognised.

In spite of this, revenue from its trading division rose 3.3% year-on-year in FY13 compared to FY12. Revenue from the manufacturing division rose 6.4% in FY13 on growth in domestic consumption coupled with improvement in the US and European economies.

According to Muda Holdings’ results announcement, its gross margin was weaker in FY13 due to softer selling prices for paper products. Despite the weaker gross margin, profit before tax rose due to the disposal of the subsidiary mentioned above.

A check on Bloomberg consensus reveals that no research house covers the stock. The stock is currently trading at a fair historical price-earnings ratio of 13.9 times and below its price-to-book value (of RM2.62) at 0.75 times. Muda Holdings has a low indicative 12-month dividend yield of 1.52%.

Maybank-IB Research first featured chart coverage on the company on Jan 22 at RM1.18. Muda Holdings’ chart trends on the daily, weekly and monthly time frames are very strong. Its share price made an obvious surge since its daily Wave-2 low of 88 sen on Dec 24, 2013. Since that 88 sen low, the company surged to its recent April 2014 high of RM2.00, with an extremely strong symmetrical triangle breakout with high volumes traded on April 23.

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Muda Holdings’ chart has moved into very strong daily, weekly and monthly uptrends to its recent April 2014 high of RM2.00. As it broke above its recent key critical resistance levels of RM1.46 and RM1.85, look to “buy” Muda Holdings on any dips to its support areas as the moving averages depict very firm short to long term uptrends for this stock.

The daily, weekly and monthly indicators (like the CCI, DMI, MACD, Stochastic and Oscillator) are very strong and now depict the firm indications of Muda Holdings eventual move towards much higher levels. We expect Muda Holdings to remain very well sought after on dips towards its support levels of RM1.46, RM1.85 and RM1.96. It may attract minor profit-taking at the resistance levels of RM2.00, RM2.17 and RM2.53. Its upside targets are now located at RM2.13, RM2.31 and RM2.74.

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 April 25, 2014.