Foreign buying lifts KLCI

by **Cals** Fri 30 May 2014, 19:45

Business & Markets 2014

Written by Lee Cheng Hooi

Friday, 30 May 2014 09:50

IN the US, the SP500 and Dow Jones Industrial Average fell after selling in retailer stocks offset gains in telecommunications and utility companies in quiet trading on Wednesday. The SP500 index fell 2.13 points to close at 1,909.78 points while the Dow declined 42.32 points to end at 16,633.18.

Asean stock indices such as the Singapore Straits Times Index rose on Wednesday as Morgan Stanley raised its rating to “overweight” citing stabilising economic growth and limited earnings risks. Thailand’s SET Index also rose after foreign outflows eased following the May 22 military coup.

In Malaysia, the FBM KLCI traded in a narrow range of 16.40 points for the week with lower volumes of 1.24 billion to 1.59 billion shares done. The index closed at 1,876.62 yesterday, up 4.96 points from the previous day as blue-chip stocks such as IOI Corp Bhd, Public Bank Bhd, Petronas Dagangan Bhd, PPB Group Bhd and RHB Capital Bhd caused the index to rise on some foreign fund buying activities.

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), 1,769.80 (low), 1,838.69 (high), 1,802.88 (low) and 1,889.47 (high).

The index’s daily signals are mostly positive, with upbeat DMI, Oscillator, CCI and Stochastic readings. Its MACD is currently negative though. As such, the index’s obvious support levels are seen at the 1,802, 1,862 and 1,876 levels, while the resistances of 1,878 and 1,882 and all-time high of 1,889 may offer some key profit-taking activities.

Should the index surpass 1,889.47, we will move to the next upside target of 1,918 for the KLCI.

Its simple moving averages depict an uptrend for its daily, weekly and monthly charts, albeit with very obvious bearish divergence signals. Due to its positive chart signals, we believe investors may adopt a “Nibble on Dips” tone for the KLCI.

Despite the better tone for the KLCI for now, we are recommending a chart “sell” on Muhibbah Engineering Bhd, which is expected to announce its results for the first quarter ended March 31 of financial year 2014 (1QFY14) soon. The group’s 4QFY13 revenue was lower 27% year-on-year (y-o-y) but it reported a higher profit after tax (PAT) of RM115 million from a loss of RM61 million y-o-y.

The lower revenue was due to delivery of major construction projects in the previous year, while the higher PAT was due to a full provision on the remaining amount receivable from the Asia Petroleum Hub project in the previous year.

A check of Bloomberg consensus reveals that five research houses have coverage on Muhibbah with “buy” calls. The stock is currently trading at a reasonable historical price-earnings ratio of 14 times and at a high price-to-book value ratio of 2.1 times. Looking at the current reported shareholding changes on Bloomberg, we observe that no major buying or selling was transacted in the month of May 2014.

Muhibbah’s chart trend on the daily time frame is much weaker. Its share price made an obvious plunge since its daily Wave-5 high of RM3.04 on April 18, 2014. Since that RM3.04 high, it declined to its recent May 2014 low of RM2.62.

Muhibbah’s chart has moved into a strong daily downtrend to its recent May 2014 low of RM2.62. As it broke above its recent key critical support levels of RM2.93 and RM2.82, look to sell Muhibbah on any rallies to its resistance areas as the moving averages depict very firm short- to medium-term downtrends for this stock.

The daily indicators (such as the CCI, DMI, MACD and Oscillator) are very weak and now depict the firm indications of Muhibbah’s eventual move towards much lower levels. We expect Muhibbah to attract heavy selling towards its resistance levels of RM2.79, RM2.82 and RM3.04. It will attract very weak nibbling activities at the support levels of RM2.39, RM2.62 and RM2.74. Its downside targets are now located at RM2.62, RM2.44 and RM2.22.

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.

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

[size][color]

This article first appeared in The Edge Financial Daily, on May 30, 2014.
[/color][/size]