Index may re-test the recent 1,685 support level

by **Cals** Fri 07 Aug 2015, 23:54

Index may re-test the recent 1,685 support level

US markets ended slightly mixed on Wednesday as investors took profit after the softer July ADP job figures and a sluggish set of revenue figures from Walt Disney Co. The S&P 500 Index inched up 6.52 points to 2,099.84 points whilst the Dow inched down 10.22 points to end at 17,540.47.
In Malaysia, the FBMKLCI index moved in a wider range of 49.55 points for the week with lower volumes of 1.22 billion to 1.65 billion traded. The index closed at 1,694.64 on Aug 6, down 30.92 points from the previous day as blue chip stocks like British American Tobacco Bhd ([You must be registered and logged in to see this image.] Financial Dashboard), KL Kepong Bhd ([You must be registered and logged in to see this image.] Financial Dashboard), Maxis Bhd ([You must be registered and logged in to see this image.] Financial Dashboard), Sime Darby Bhd ([You must be registered and logged in to see this image.] Financial Dashboard) and Tenaga Nasional Bhd ([You must be registered and logged in to see this image.] Financial Dashboard) caused the index to fall on some persistent selling activities. The ringgit was much weaker against the US dollar at 3.9125 as Brent crude oil eased to US$49.02 (RM190.68) per barrel.
The index rose on a rally from the 801.27 low (October 2008) to its 1,896.23 all-time high (July 2014) and it represents an extended Elliott Wave “flat” rebound in a “pseudo-bull” rise completed. The next few months’ index price movements since July 2014 comprised key swings of 1,837.28 (low), 1,879.62 (high), 1,766.22 (low), 1,858.09 (high), 1,671.82 (low), 1,810.21 (high), 1,706.18 (low), 1,831.41 (high), 1,774.3 (low), 1,867.53 (high), 1,685.03 (low) and 1,744.19 (high).
Some of the index’s daily signals have turned negative, with its CCI, DMI and Stochastic indicators showing sell readings. As such, the index’s weaker support levels are seen at the 1,660, 1,671 and 1,685-levels, whilst the resistance areas of 1,694, 1,744 and 1,776 will cap any index rebound. The immediate downside targets for the index are now located at 1,658 and 1,605.
The KLCI’s 18 and 40 simple moving averages (SMA) depict an emerging downtrend for its short-term daily chart currently. The recent price bars of the index are also below the 50 and 200 SMA with a “dead cross”. Therefore, this may not augur well for the index in the short to longer term.
Despite the softer tone for the KLCI index, we are recommending a chart “buy” on EA Technique (M) Bhd (EA Tech). There was no recent news on EA Tech in the last few months. Despite the softer crude oil trend since early May 2015, the stock price of EA Tech had been very resilient.
A check on the Bloomberg consensus reveals that no research houses have coverage on the stock. EA Tech currently trades at a high historical price-earnings ratio of 40.27 times. Its price-to-book value ratio of 3.16 times indicates that its share price is trading at a high premium to its book value.
EA Tech’s chart trend on the daily, weekly and monthly timeframe is very firmly up. Its share price made a fantastic surge since its major daily wave-2 low of RM0.52 on March 5. Since that RM0.52 low, EA Tech surged to its August 2015 recent all-time high of RM1.50.
As prices broke above its recent key critical resistance levels of RM1.21 and RM1.31, look to buy EA Tech on any dips to its support areas as the moving averages depict very firm short- to long-term up trends for this stock.
The daily indicators (like the CCI, DMI, MACD and Oscillator) have issued firm buy signals and now depict very firm indications of EA Tech’s eventual surge towards much higher levels. It would attract firm buying activities at the support levels of RM1.21, RM1.31 and RM1.49. We expect EA Tech to witness some profit-taking at its resistance area and all-time high of RM1.50. Its upside targets are located at RM1.62, RM1.85 and RM2.21.
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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 digitaledge Daily, on August 7, 2015.