Weaker tone for KLCI to prevail

by **Cals** Fri 05 Sep 2014, 21:34

Business & Markets 2014

Written by Lee Cheng Hooi, Maybank Kim Eng

Friday, 05 September 2014 09:41

AMERICAN stock markets ended mixed on Wednesday in lacklustre trading. Rumours that Russia and Ukraine have agreed on steps which will lead to a ceasefire lifted market sentiment initially. However, market euphoria diminished after Apple Inc sank 3.1% as rival Samsung Electronics Co Ltd introduced new smartphones and Delta Air Lines lost 4.1% after it lowered forecasts for some third quarter targets.

The SP500 Index inched down 1.56 points to close at 2,000.72 points while the Dow Jones Industrial Index rose 10.72 points to end at 17,078.25 points in quiet trading on Wednesday.

In Malaysia, the FBM KLCI traded in a wider range of 18.97 points for the week with lower volumes of 2.52 billion to 3.0 billion shares traded. The index closed at 1,869.21 yesterday, up 4.34 points from the previous day as blue-chip stocks such as AMMB Holdings Bhd, Kuala Lumpur Kepong Bhd (KLK), Petronas Dagangan Bhd, Petronas Gas Bhd and PPB Group Bhd caused the index to inch up on some very last-minute afternoon buying activities. KLK led the late rises, gaining RM1.10 at, literally, the last trading tick.

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 KLCI’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), 1,837.28 (low) and 1,879.62 (high).

The index’s daily signals are mainly negative, as the CCI, Oscillator and Stochastic have issued “sell” signals. However, its DMI and MACD have remained positive so far. As such, the index’s weaker support levels are seen at the 1,802, 1,837 and 1,860 levels, while the resistance areas of 1,869 and 1,879 and all-time high of 1,896 will offer heavy liquidation and obvious profit-taking activities.

The KLCI’s simple moving averages depict a marginal uptrend for its monthly chart. Its daily and weekly charts are currently neutral. Due to its mixed chart signals, we believe investors will adopt a “sell on rallies” tone for the KLCI. With the very obvious bearish divergence signals on its indicators, chances of a significant upside for the index are diminished currently.

With the September KLCI Futures contract closing at a massive 10.71 points discount against the KLCI, optimism over the cash index may be quickly fading.

Due to the weaker tone for the KLCI, we are recommending a chart “sell” on Brahim’s Holdings Bhd. Its share price made a new 52-week high of RM2.71 on March 7, 2014 and then it tumbled down almost close to its 52-week low of RM1.15. This small-capped stock derives more than 50% of its sales volume from Malaysian Airline System Bhd, which will soon undergo a restructuring exercise.

Due to the uncertain nature of the national carrier’s restructuring, investors’ reaction to Brahim’s has been rather adverse, pending further clarity on its long-term catering contract with MAS.

Brahim’s has a high debt-to-equity ratio of 66%. Any changes to its in-flight catering sales volumes together with its high gearing could have a further adverse impact on its profitability.

A check of Bloomberg consensus reveals that only two research houses have coverage on Brahim’s. The stock is currently trading at a decent price-earnings ratio of 11.2 times and a reasonable price-to-book value ratio of 1.13 times. The reported shareholding changes on Bloomberg reveal that there were net buying transactions from June to August by Lembaga Tabung Haji, Koperasi Permodalan Felda and JP Morgan Funds Asia.

Brahim’s chart trend on the daily, weekly and monthly time frames is very weak and is firmly down. Its share price made a bad plunge since its weekly Wave-5 high of RM2.71 in March 2014. Since that RM2.71 high, Brahim’s plunged to its recent September 2014 low of RM1.16.

Brahim’s chart is in very strong daily, weekly and monthly downtrends with its move to the recent September 2014 low of RM1.16. As it broke above its recent key critical support levels of RM2.19 and RM1.60, look to dispose Brahim’s on any rallies to its resistance areas as the moving averages depict very firm short- to medium-term downtrends for this stock.

The daily and weekly indicators (like the CCI, DMI, MACD, Oscillator and Stochastic) have issued “sell” signals and now depict very firm indications of Brahim’s eventual move towards much lower levels. It would attract very weak buying activities at the support levels of 75 sen, 93 sen and RM1.00. We expect Brahim’s to attract heavy liquidation towards its resistance levels of RM1.21, RM1.60 and RM2.19. Its downside targets are located at RM1.01, 59 sen and 18 sen.

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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 September 5, 2014.[/size]