Market faces intense selling pressure

by **Cals** Sun 21 Sep 2014, 18:49

Business & Markets 2014

Written by Lee Cheng Hooi of Maybank Kim Eng

Friday, 19 September 2014 09:59

AMERICAN stock markets ended slightly firmer on Wednesday after the US Federal Reserve pledged to keep interest rates low for a considerable period of time at its Federal Open Market Committee meeting on Tuesday and Wednesday. The Fed also tapered its monthly bond buying programme by a further US$10 billion (RM32.3 billion) to US$15 billion, staying on course to finish the quantitative easing programme by October 2014.

On Wednesday, the SP 500 index inched up 2.59 points to close at 2,001.57 points while the Dow Jones Industrial Average rose 24.88 points to end at 17,156.85 in muted trading.

The FBM KLCI traded in a wider range of 19.66 points for the week with lower volumes of 1.94 billion to 2.49 billion shares traded. The index closed at 1,845.32 yesterday, up a mere 1.45 points from the previous day as blue-chip stocks like AMMB Holdings Bhd, Hong Leong Bhd, Hong Leong Financial Bank Bhd, Genting Bhd, Petronas Gas Bhd and PPB Group Bhd caused the index to rise on some very late afternoon 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 price movements on 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), 1,802.88 (low), 1,896.23 (high), 1,837.28 (low) and 1,879.62 (high).

All the daily signals on the index recently turned negative. As such, the index’s weaker support levels are seen at 1,769, 1,802 and 1,836, while the resistance areas of 1,845 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 (18, 40 and 200 MA) depict an emerging downtrend for their daily and weekly charts. With the prices breaking below the larger and lower rising wedge support line this week, we foresee longer-term selling activities for the index. The selling pressure will be intense and persistent if and when the index rebounds.

Due to the KLCI’s softer tone, we are recommending a chart “sell” on TAS Offshore Bhd. TAS has fallen off its all-time peak of RM1.65 since July 2014 to its current level of 94.5 sen, erasing approximately RM123.9 million from its market capitalisation.

In line with our weaker chart outlook for crude oil prices, we are bearish on the oil and gas segment, which will also adversely impact investor sentiment towards TAS. The company’s share price weakness is in line with the softer European Brent crude prices which stalled at US$115.77 in mid-June 2014 with negative chart signals. We have a “sell on rallies” stance on Brent and its downside target levels are US$93.75, US$83.75 and US$78.70 in the medium term.

A check of Bloomberg consensus reveals that only one research house has coverage on TAS. The stock is currently trading at an inexpensive price-earnings ratio of 5.77 times and at a discounted price-to-book value ratio of 0.95 times. The reported shareholding changes on Bloomberg did not reveal any major transactions over the past month.

TAS’ chart trend on the daily and weekly time frames is very weak and is firmly down. Its share price made a large plunge since its weekly Wave-5 high of RM1.65 in July 2014. Since that high, TAS plunged to its recent September low of 94.5 sen.

As prices broke above their recent key critical support levels of RM1.28 and RM1.13, look to “sell” TAS on any rebounds 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 and Oscillator) have issued “sell” signals and now depict very firm indications of TAS’ eventual move towards much lower levels.

It would attract very weak buying interest at the support levels of 75 sen, 80 sen and 89 sen. We expect TAS to attract major liquidation towards its resistance levels of 94.5 sen, RM1.13 and RM1.28. Its downside targets are located at 89 sen, 54 sen and 24 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 19, 2014.[/size]