Persistent market volatility

by **Cals** Sun 27 Sep 2015, 17:19

Persistent market volatility

By Lee Cheng Hooi / The Edge Financial Daily | September 25, 2015 : 9:34 AM MYT

This article first appeared in The Edge Financial Daily, on September 25, 2015.

US equity markets fell on Wednesday as a slump in commodity prices reignited investor fears of slowing global growth. Softer economic data from China and Europe spilled over into the American markets and the S&P 500 Index fell 3.98 points to 1,938.76, while the Dow Jones Industrial Average declined 50.58 points to end at 16,279.89.

In Malaysia, the FBM KLCI moved in a wider range of 52.12 points for the week with lower volumes of 1.6 billion to 1.99 billion shares traded. The index closed at 1,613.17 on Wednesday, down 22.2 points from the previous day as blue-chip stocks like [size=16]Axiata Group Bhd ([You must be registered and logged in to see this image.] Valuation: 1.10, Fundamental: 0.85), Genting Bhd ( Valuation: 1.40, Fundamental: 1.95), Hong Leong Financial Group Bhd ( Valuation: 2.55, Fundamental: 2.20), Kuala Lumpur Kepong Bhd ( Valuation: 1.10, Fundamental: 1.00), Public Bank Bhd ( Valuation: 1.80, Fundamental: 2.80) and Sime Darby Bhd ( Valuation: 1.40, Fundamental: 0.80) caused the index to tumble on heavy selling activities. The ringgit was much weaker against the US dollar at 4.3440 as Brent crude remained steady at US$47.60 (RM208.96) per barrel.

The index rose on a rally from a 801.27 low (October 2008) to its 1,896.23 all-time high (July 2014), and this represented an extended Elliott Wave “flat” rebound in a “pseudo-bull” rise completed. The next few months’ index price movements after 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), 1,744.19 (high), 1,503.68 (low) and 1,691.93 (high).

The index’s daily signals have turned mixed, with its CCI, DMI and Stochastic indicators showing sell signals, but the MACD and Oscillator are positive for now. As such, the index’s weaker support levels are seen at the 1,503, 1,567 and 1,609 levels, while profit-taking in the resistance areas of 1,613, 1,661 and 1,691 will cap the index’s advances.

The KLCI’s 18-day and 40-day simple moving averages (SMAs) depict an emerging downtrend for its short-term daily chart. The index’s price bars are also below the 50-day and 200-day SMAs, and this depicts a softer phase for the medium- to longer-term moving averages.

Due to the softer tone of the KLCI, we are recommending a chart “sell” on UMW Holdings Bhd (UMW) ([You must be registered and logged in to see this image.] Valuation: 1.40, Fundamental: 1.40). A check on the Bloomberg consensus reveals that 18 research houses cover the stock, with no “buy” call, 10 “hold” calls and eight “sell” calls.

Maybank Investment Bank’s analyst has a “hold” call on UMW, with a sum-of-parts-based target price of RM7.80 as its first half of financial year 2015 (FY15) earnings of RM225 million were below expectations. The key disappointments in its second quarter of FY15 earnings were in the auto and oil and gas (O&G) divisions, where higher US dollar-denominated costs hit the auto division and underutilisation of its jack-up rigs affected the O&G division.

UMW’s chart trends in the daily, weekly and monthly time frames are very firmly down. Its share price made an obvious plunge since its major weekly Wave-5 high of RM12.23 in August 2014. Since that RM12.23 high, UMW’s share price fell to its recent low of RM7.70 this month.

As prices broke above its recent key critical support levels of RM9.72 and RM8.84, look to sell UMW 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 and Oscillator) have issued clear sell signals, and now depict firm indications of UMW’s eventual plunge to lower levels. It would attract firm selling activities at the resistance levels of RM7.77, RM8.84 and RM9.72. We expect UMW to witness weak buying in its support areas of RM6.74, RM7.02 and RM7.70. Its downside targets are located at RM5.85, RM4.55 and RM1.98.

[You must be registered and logged in to see this image.]

[/size]

[size]

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.
[/size]