AMERICAN stock markets ended mixed on Wednesday after the European Central Bank (ECB) tightened the terms of Greece’s bailout. The ECB said that it will no longer suspend its own collateral rules for Greek government debt, citing doubt about the new government’s commitment to previous reform pledges. The S&P 500 Index fell 8.52 points to close at 2,041.51 points while the Dow inched up 6.62 points to end at 17,673.02. 

The FBM KLCI index moved in a volatile range of 35 points for the week with lower volumes of 1.65 billion to 2.05 billion shares traded. The index closed at 1,803.21 yesterday, up a mere 0.19 of a point from the previous day as blue-chip stocks such as British American Tobacco (M) Bhd, CIMB Group Holdings Bhd, Kuala Lumpur Kepong Bhd, Malayan Banking Bhd, and Public Bank Bhd caused the index to inch up on minor local nibbling activities. The ringgit was a touch firmer against the US dollar at 3.5740 as Brent crude oil remained softer at US$52.40 (RM187.60) 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 have 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), and 1,831.41 (high).

Most of the index’s daily signals are positive (except Stochastic). As such, the index’s clear support levels are seen at 1,671, 1,738 and 1,789, while the resistance areas of 1,803, 1,831 and 1,858 will cap any index rebound.

The KLCI’s 18 and 40 simple moving averages (SMAs) depict an emerging uptrend for its daily chart. However, the price bars of the index are now between the 50 and 200 SMAs and remain in a neutral position on that front. The recent fall from its all-time high of 1,896.23 saw a low of 1,671.82. The rebound from 1,671.82 stalled at 1,831.41 (on Feb 4, 2015), which is just below the 200-SMA line of 1,833.26.

Due to the unsure tone for the KLCI, we are recommending a chart “sell” on IOI Properties Group Bhd. IOI Properties released its first quarter of financial year 2015 (1QFY15) results at the end of November 2014 and is expected to announce its 2QFY15 results sometime late this month. It has three main operating divisions which contribute towards the group’s operating profit in 1QFY15. These divisions are property development which contributes approximately 83%, property investment which chips in about 11%, while leisure and hospitality and others make up the remaining 6%.

In the results announcement, IOI Properties’ revenue rose by about 34% year-on-year (y-o-y) to RM375 million for 1QFY15 from RM280 million in 1QFY14, while profit before tax expanded correspondingly by 12.8% y-o-y to RM150 million in 1QFY15 from RM133 million in 1QFY14. According to IOI Properties’ announcement, the improved profitability was attributed to positive contributions from all its operating segments.

Going forward, IOI Properties pointed out that the Malaysian property sector remains challenging with tighter financial criteria by banks on loan approvals. A check of the Bloomberg consensus reveals that eight research houses cover IOI Properties, of which there are six “hold” calls and two “buy” calls. This stock currently trades at a low price-earnings ratio of 6.7 times while its price-to-book value ratio of 0.62 times indicates that its share price is trading at a huge discount to its book value.

IOI Properties’ chart trend on the daily, weekly and monthly time frames is very firmly down. Its share price has made a large decline since its all-time high of RM3.36 on Jan 15, 2014. Since that RM3.36 high, IOI Properties fell to its all-time low of RM2.06 in January 2015.

As prices broke below their recent key critical support levels of RM2.45 and RM2.27, look to sell IOI Properties on any rebounds to its resistance areas as the MAs depict very firm short- to long- term downtrends for this stock. 

The daily and weekly indicators (like the CCI, DMI, MACD and Oscillator) have issued “sell” signals and now depict very firm indications of IOI Properties’ eventual move towards much lower levels. It would attract firm selling activities at the resistance levels of RM2.08, RM2.27 and RM2.45. We expect IOI Properties to witness weak buying interest at its support and all-time low of RM2.06. Its downside targets are at RM1.92, RM1.72 and RM1.60.

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.

This article first appeared in The Edge Financial Daily, on February 6, 2015.