Still volatile tone for FBM KLCI

by **Cals** Fri 11 Sep 2015, 20:16

Still volatile tone for FBM KLCI

By Lee Cheng Hooi / digitaledge Daily | September 11, 2015 : 10:28 AM MYT

US markets fell on Wednesday as job openings in America surged to a record in July. This hastened the perception that the US Federal Reserve may be on its interest rate hike cycle in September 2015. The US markets rose initially, sparked by large gains in China and Japan. However, markets turned south after the jobs data emerged. The SP 500 Index tumbled 27.37 points to 1,942.04 points whilst the Dow plunged 239.11 points to end at 16,235.57.

In Malaysia, the FBM KLCI Index moved in a narrower range of 46.11 points for the week with higher volumes of 1.68 billion shares to 2.56 billion shares traded. The index closed at 1,614.02 yesterday, up 10.66 points from the previous day as blue chip stocks like [size=16]British American Tobacco (M) Bhd ([You must be registered and logged in to see this image.] Valuation: 1.50, Fundamental: 1.35), CIMB Group Holdings Bhd ( Valuation: 2.25, Fundamental: 1.05), Genting Bhd, Genting Malaysia Bhd ( Valuation: 0.80, Fundamental: 2.40), and RHB Capital Bhd ( Valuation: 2.10, Fundamental: 1.50) caused the index to rise on some rebound buying activities. The ringgit was weaker against the US dollar at 4.3170 as Brent crude oil inched up to US$47.20 (RM205.17) per barrel.

The index rose on a rally from the 801.27 low (Oct 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), 1,774.30 (low), 1,867.53 (high), 1,685.03 (low), 1,744.19 (high), 1,503.68 (low) and 1,660.22 (high).

The index’s daily signals have turned slightly mixed, with its DMI and Oscillator indicators showing negative signals but the CCI, MACD and Stochastic are positive. As such, the index’s support levels are seen at the 1,503, 1,567 and 1,614 levels, while very heavy selling at the resistance areas of 1,620, 1,660 and 1,685 will cap any index rebound. The medium-term downside targets for the index may still remain at 1,448 and 1,414.

The FBM KLCI’s 18-day and 40-day simple moving averages (SMA) depict a mild sideways trend for its short-term daily chart whilst the 50-day and 200-day SMA have intersected with a “Death Cross” as well. Therefore, this will not augur well for the index in the medium to longer term.

Furthermore, the FBM KLCI had broken a very critical “Neckline” support of a major “Head and Shoulder” pattern on Aug 10, 2015. The implied target of such a breakdown pitches the medium-term downside target at 1,448 despite its current minor rebound phase that began on Aug 25, 2015 from the 1,503.68 low.

Due to the volatile tone for the FBM KLCI Index, we are recommending a chart “sell” on Sime Darby Bhd ([You must be registered and logged in to see this image.] Valuation: 1.40, Fundamental: 0.80). A check on the Bloomberg consensus reveals that 26 research houses cover the stock, with three “buy” calls, 17 “hold” calls and six “sell” calls.

Maybank Investment Bank Bhd’s analyst has a “hold” call on Sime Darby despite its 4QFY6/15 core net profit of RM1 billion coming out above expectations at 114% of his forecast. The FY6/15 results were weaker year-on-year due to weaker crude palm oil average selling prices and lower fresh fruit bunches output, declining Australasia industrial contributions as well as margin compression from its Malaysia, Hong Kong and China motors segment. He maintained Sime Darby’s target price at RM7.98, based on 18 times financial year 2017 price-earnings ratio.

Sime Darby currently trades at a high historical PER of 19.1 times. Its price-to-book value ratio of 1.47 times indicates that its share price is trading at a minor premium to its book value.

Sime Darby’s chart trend on the daily, weekly and monthly time frames is very firmly down. Its share price made an obvious plunge since its major weekly Wave-5 high of RM9.60 in January 2015. Since that RM9.60 high, Sime Darby has tumbled to its August 2015 recent low of RM6.70.

As prices broke above its recent key critical support levels of RM7.95 and RM8.26, look to “sell” Sime Darby on any rallies to its resistance areas as the moving averages depict a very firm short- to medium-term downtrend for this stock.

The daily, weekly and monthly indicators (like the CCI, DMI, MACD and Oscillator) have issued clear sell signals and now depict firm indications of Sime Darby’s eventual plunge towards lower levels. It would attract firm selling activities at the resistance levels of RM7.19, RM7.95 and RM8.26. We expect Sime Darby to witness weaker buying at its support areas of RM6.07, RM6.70 and RM7.15. Its downside targets are located at RM6.65, RM6.04 and RM4.99.

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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 reports appear on Wednesdays and Fridays.

This article first appeared in digitaledge Daily, on September 11, 2015.
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