Index firmly capped by the 62% level

by **Cals** Mon 04 Apr 2016, 02:04

Index firmly capped by the 62% level

By Lee Cheng Hooi / TheEdge | April 1, 2016 : 10:38 AM MYT

This article first appeared in The Edge Financial Daily, on April 1, 2016.

US equity markets rose on Wednesday as Apple Inc rallied to a three-month high, boosting technology shares, while banks rose for the first time in six days. US Federal Reserve chair Janet Yellen said the central bank had little appetite to raise interest rates in April as global economic and financial uncertainty posed risks to the US economy and justified a slower path of interest rate hikes. The S&P 500 Index rose 8.94 points to 2,063.95, while the Dow Jones Industrial Average gained 83.55 points to end at 17,716.66.

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The FBM KLCI moved in a narrower range of 25.87 points for the week, with lower volumes of 1.54 billion to 1.85 billion shares traded. The index closed at 1,717.58 yesterday, down 0.24 points from the previous day as blue-chip stocks like AMMB Holdings Bhd, IOI Corp Bhd, KLCCP Stapled Group, Tenaga Nasional Bhd and UMW Holdings Bhd caused the index to decline on minor selling activities. The ringgit firmed against the US dollar at 3.8930 despite Brent crude declining to US$38.60 (RM150.93) 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 this represented 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) was 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 was an almost perfect 62% upward 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 a 1,706.25 minor high on Dec 30, 2015. Its persistent weaker price action in January 2016 was in tandem with the softer tone of 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 stochastic indicators showing chart “buy” signals. Its moving average convergence divergence (MACD) indicator has issued a “sell” signal though. As such, the index’s support levels are seen at 1,651, 1,676 and 1,698, while heavy profit-taking in the resistance areas of 1,717, 1,728 and 1,744 will cap any index rebound.

The FBM KLCI’s 18-day and 40-day simple moving averages (SMAs) 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 SMAs, 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 steady tone of the FBM KLCI, we are recommending a chart “buy” on ML Global Bhd. The company constructs commercial and residential buildings, and operates as contractor for plumbing and sanitary engineering works. ML Global’s revenue and net profit increased 337.7% and 100% year-on-year respectively. Its historical price-earnings ratio is at a very low 5.4 times.

The company was finally lifted from Practice Note 17 (PN17) status after six years in March 2016. ML Global amended its original regularisation plan from one that saw property developer LBS Bina Group Bhd becoming a strategic investor to regularising its financial condition and level of operations. The plan was completed in October 2014, and the company had been working with advisers since to lift the PN17 status.

ML Global’s chart trend in the daily, weekly and monthly time frames is firmly up. From a weekly Wave 5 low of 30 sen (December 2014), its prices have turned up strongly in the daily, weekly and monthly time frames to a recent March 2016 high of 64 sen.

As prices broke above its recent key critical resistance levels of 50 sen and 54 sen, look to buy ML Global on any dips to its support areas as the moving averages depict a very firm short- to long-term uptrend for the stock. The daily, weekly and monthly indicators (like the CCI, DMI, MACD and oscillator) have issued clear “buy” signals, and now show firm and obvious indications of ML Global’s eventual surge towards much higher levels.

It would attract very firm buying activities at the support levels of 50 sen, 54 sen and 61 sen. We expect ML Global to witness some mild profit-taking activities at its resistance levels of 64 sen, 66 sen and 70 sen. Its clear upside targets are located at 66 sen, 74 sen, 85 sen and 91 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 reports appear every Wednesday and Friday.
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