Inching up into selling volatility

by **Cals** Mon 23 May 2016, 00:34

Inching up into selling volatility

By Lee Cheng Hooi / The Edge Financial Daily | May 20, 2016 : 10:16 AM MYT

This article first appeared in The Edge Financial Daily, on May 20, 2016.

US equity markets ended on Wednesday in quiet trading, a day after some Federal Reserve (Fed) officials stated that interest rates may rise at the next FOMC (Federal Open Market Committee) meeting in mid-June. The minutes from the April FOMC meeting appeared to echo concerns articulated by Fed officials recently. After trading in a volatile manner on Tuesday, the Dow Jones Industrial Average inched down 3.36 points to 17,526.62, while the S&P 500 Index inched up 0.42 of a point to end at 2,047.63.

The FBM KLCI inched down despite a narrower range of 25.76 points traded for the week with sluggish volumes of 1.38 billion to 1.88 billion shares traded. The index closed at 1,633.76 yesterday, down 1.96 points from the previous day as blue-chip stocks like DiGi.Com Bhd, Genting Bhd, Malayan Banking Bhd, Petronas Chemicals Bhd and UMW Holdings Bhd caused the index to decline on minor selling activities. The ringgit was weaker against the US dollar at 4.0820 as Brent crude declined to US$47.25 (RM192.78) per barrel.

The FBM KLCI 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), 1,727.41 (high), 1,600.92 (low) and 1,729.13 (high).

The index managed to surpass the key 62% Fibonacci retracement (FR) level of 1,728.54 to a recent high of 1,729.13 on April 14, 2014. Very heavy liquidation at that level had caused the index to decline and move into a downward phase for its 20-day and 50-day simple moving averages (SMA) with a “Dead Cross” on its short-term daily chart.

The index’s price bars are now below the 50-day and 200-day SMA, and this depicts a downward phase for the FBM KLCI in the medium to longer term. Medium- to longer-term prospects look bleaker as the weekly 50-day and 200-day SMA have also issued a “Dead Cross” in November 2015. Any bargain hunting on the index will be met by heavy longer-term selling on rallies.

The index’s daily signals are mainly negative, with its Commodity Channel Index (CCI), Directional Movement Index (DMI), Moving Average Convergence Divergence (MACD) and oscillator all depicting very obvious sell signals. As such, the index’s weaker support levels are seen at 1,595, 1,611 and 1,621, while very heavy liquidation at the resistance areas of 1,633, 1,700 and 1,729 will cap the index’s rise. The daily downside targets for the index are located at 1,569 and 1,527.

All rebounds on the index to its 23%, 38%, 50% and 62% FR clusters of 1,637.77, 1,639.57, 1,653.76, 1,656.69, 1,666.69, 1,670.52, 1,679.62 and 1,684.35 would be met with very obvious longer-term selling and liquidation activities.

Due to the very weak tone for the FBM KLCI, we are recommending a chart “sell” on Naim Holdings Bhd . The company is into property development and investments, as well as construction and civil engineering works. It also manufactures and sells reinforced concrete piles, as well as provides earthwork contractor services. A check on the Bloomberg consensus reveals that three research houses cover this stock, with a “buy”, a “hold” and a “sell” call each. Maybank Investment Bank Bhd does not cover Naim on a fundamental basis.

Naim’s chart trend on the daily, weekly and and monthly time frames is firmly down. From a monthly Wave C high of RM4.51 (May 2013), its prices have plunged 56.3% on the daily, weekly and monthly time frames to a daily Wave 3 low of RM1.91 (May 2016).

As prices broke above their recent key critical support levels of RM2.24 and RM2.42, look to sell Naim on any rallies to its resistance areas, as the moving averages depict a very firm short- to long-term downtrends for this stock. The daily, weekly and monthly indicators (like the CCI, DMI, MACD, oscillator and stochastic) have issued clear sell signals and now show firm and obvious indications of Naim’s eventual plunge towards much lower levels.

It would attract very weak buying activities at the support levels of RM1.60, RM1.70, and RM1.91. We expect Naim to witness very heavy activities at its resistance levels of RM1.92, RM2.24 and RM2.42. Its clear downside targets are located at RM1.81, RM1.31, RM1.24, RM1.16 and RM0.83.

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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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