‘Touch and Go’ at 1,728

by **Cals** Mon 28 Mar 2016, 00:14

‘Touch and Go’ at 1,728

By Lee Cheng Hooi / The Edge Financial Daily | March 25, 2016 : 10:36 AM MYT

This article first appeared in The Edge Financial Daily, on March 25, 2016.

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US equity markets declined for a second day on Wednesday, as prices for crude oil, gold and emerging market assets retreated. The S&P 500 Index had its biggest drop in two weeks led by energy producers. The S&P 500 Index fell 13.09 points to 2,036.71, while the Dow lost 79.98 points to end at 17,502.59.

In Malaysia, the FBM KLCI Index moved in a narrower range of 19.44 points for the week with higher volumes of 1.69 billion to 2.42 billion shares traded. The index closed at 1,715.53 yesterday, down 9.02 points from the previous day as blue-chip stocks such as British American Tobacco (Malaysia) Bhd, Hong Leong Financial Group Bhd, Genting Bhd, Kuala Lumpur Kepong Bhd and PPB Group Bhd caused the index to decline on selling activities. The ringgit gained slightly against the US dollar at 4.0340 as Brent crude remained stable at US$39.42 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 1,671.82 (low), 1,867.53 (high), 1,503.68 (low) and 1,727.41 (high).

The index’s decline from 1,867.53 (April 2015) to 1,503.68 (August 2015) is in a perfect 1.62 ratio of the initial down-thrust from the high of 1,896.23 (July 2014) to the 1,671.82 low (December 2014). The subsequent rebound from the 1,503.68 low stalled at the 1,727.41 high, which is also an almost perfect upward 62% retracement of the 1,867.53 to 1,503.68 move.

The index’s next two minor swings comprised a minor low of 1,622.84, which then stalled at the 1,706.25 minor high on Dec 30, 2015. Its persistent weaker price action in January 2016 was in tandem with the softer tone for global markets and the index troughed at 1,600.92 on Jan 21, 2016. The index’s next rebound from the 1,600.92 low surged to a new recent high of 1,726.55 on March 23, 2016.

The index’s daily signals are mainly positive, with its Commodity Channel Index (CCI), Directional Movement Index (DMI), oscillator and moving average convergence divergence (MACD) indicators showing chart “buy” signals. Its overbought stochastic has issued a “sell” signal. As such, the index’s support levels are seen at the 1,651, 1,676 and 1,707 levels, while obvious profit-taking at the resistance areas of 1,715, 1,728 and 1,744 may cap any index rebound.

The FBM KLCI’s 18-day and 40-day simple moving averages (SMA) depict an emerging trend for its short-term daily chart. The index’s price bars are finally above the 50-day and 200-day daily SMA, and this depicts a better upward phase for the FBM KLCI in the medium to longer term too.

A key level to note for the FBM KLCI is 1,728.54, which is the actual 62% Fibonacci retracement of the 1,867.53 high against the 1,503.68 low. If the FBM KLCI is unable to surpass this level, then the onus will move towards the downside. Should the FBM KLCI surpass this level, then a firmer trend will persist.

Due to the upbeat tone for the FBM KLCI, we are recommending a chart “buy” on Carlsberg Brewery Malaysia Bhd. The company manufactures beer, stout, shandy and non-alcoholic beverages. A check on the Bloomberg consensus reveals that nine research houses cover this stock, with eight “buy” calls and one “hold” call.

Maybank Investment Bank Bhd’s analyst recently upgraded Carlsberg Malaysia from a “hold” call to a “buy” call with a target price of RM14.20 from RM13, having imputed the reduced regulatory risk post the recent excise tax hike announcement of about 10%. Carlsberg Malaysia has also passed on part of the excise increase to consumers via higher selling prices. The fourth quarter of financial year 2015 (4QFY15) core net profit increased 18% year-on-year and 19% quarter-on-quarter respectively, which was above expectations. Better-than-expected sales and margin contributions from Singapore were the factors that boosted core net profit.

Carlsberg Malaysia’s chart trend on the daily, weekly and monthly time frames are firmly up. From a daily Wave-5 low of RM11.30 (Nov 25, 2015), its prices have turned up strongly on the daily and weekly time frames to a recent March 2016 high of RM13.96.

As prices broke above its recent key critical resistance levels of RM13.08 and RM13.18, look to “buy” Carlsberg Malaysia on any dips to its support areas as the moving averages depict a very firm short- to long-term uptrend for this stock. The daily, weekly and monthly indicators (like the CCI, DMI, MACD, oscillator and stochastic) have issued clear “buy” signals and now show firm and obvious indications of Carlsberg Malaysia’s eventual rise towards much higher levels.

It would attract firm buying activities at the support levels of RM13.08, RM13.18 and RM13.90. We expect Carlsberg Malaysia to witness some mild profit-taking activities at its resistance levels of RM13.96, RM14.02 and RM15.39. Its clear upside targets are located at RM14.89, RM15.85 and RM17.53.

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.