A temporary price recovery

by **Cals** Fri 15 Aug 2014, 23:10

Business & Markets 2014

Written by Lee Cheng Hooi

Friday, 15 August 2014 09:29

US stock markets ended higher on Wednesday as a slowdown in retail sales boosted speculation that the US Federal Reserve will not be forced to raise interest rates sooner than anticipated. The SP500 Index gained 12.97 points to close at 1,946.72 points while the Dow Jones Industrial Average rose 91.26 points to end at 16,651.80 in moderate trading.

In Malaysia, the FBM KLCI traded in a wider range of 22.73 points for the week with higher volumes of 3.01 billion to 3.95 billion shares traded. The index closed at 1,861.58 yesterday, up 3.54 points from the previous day as blue-chip stocks like Hong Leong Financial Group Bhd, Malayan Banking Bhd, Petronas Dagangan Bhd, Petronas Gas Bhd, Public Bank Bhd and Tenaga Nasional Bhd caused the index to inch up on some nibbling 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’s 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), 1,896.23 (high) and 1,837.28 (low).

The index’s daily signals are mainly negative, as the CCI, DMI, MACD and Oscillator have issued “sell” signals. However, its Stochastic has turned up from oversold levels with a “buy” signal.

As such, the index’s obvious support levels are seen at the 1,837, 1,845 and 1,861 levels, whilst the resistance areas of 1,863 and 1,882 and all-time high of 1,896 will offer heavy liquidation and obvious profit-taking activities.

The KLCI’s simple moving averages (MA) depict a marginal uptrend for its monthly chart. Its daily chart has persisted on its fledgling downward trek, whilst its weekly chart had just turned neutral. Due to its mixed chart signals, we believe investors will adopt a “range trading” tone for the KLCI. With the very obvious bearish divergence signals on its indicators, there are diminished chances of significant upside for the index currently.

Due to the KLCI’s rebound tone, we are recommending a chart “buy” on Tasco Bhd. The company reported improved profitability in the first quarter ended June 30 of financial year 2015, which was attributed to both the international and domestic business solution segments.

The international business segment attributed the improvement to higher and urgent export shipments by air from major customers in the manufacturing sector which lifted its air freight forwarding revenue by 24% while its ocean freight forwarding revenue rose 13.3%.

On the domestic front, the contract logistic division’s revenue rose 76.7% on business from a newly secured large fast-moving consumer goods customer and increased export shipments.

A check of the Bloomberg consensus reveals that only one research house has coverage on Tasco and it has a “buy” call. The stock is currently trading at an attractive price-earnings ratio of 11.95 times and at a marginally more pricey price-to-book value ratio of 1.35 times. The reported shareholding changes on Bloomberg did not reveal any major transactions over the last month.

Maybank-IB initiated chart coverage on Tasco in September 2008. Since then, its chart trend on the daily, weekly and monthly time frames have gone up strongly. Its share price made a fine surge since its monthly Wave-2 low of 75 sen in October 2009. Since that 75 sen low, Tasco rose to its recent August 2014 high of RM3.63.

Tasco’s chart is in very strong daily, weekly and monthly uptrends with its move to the recent August 2014 high of RM3.63. As it broke above its recent key critical resistance levels of RM3.17 and RM3.41, look to buy Tasco 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, MACD, Oscillator and Stochastic) have issued “buy” signals and now depict very firm indications of Tasco’s eventual move towards much higher levels. It would attract very firm buying activities at the support levels of RM3.17, RM3.41 and RM3.62. We expect Tasco to attract light profit taking towards its resistance and all-time high of RM3.63. Its upside targets are located at RM3.74, RM4.56, RM4.86 and RM5.80.

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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 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 August 15, 2014.[/size]