Buying support emerges at 1,774.3

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AMERICAN markets ended higher on Wednesday after the US Federal Reserve stated that it would be gradual in its guidance of the potential interest rate hike in the later part of 2015 at the Federal Open Market Committee meeting that night itself. The S&P 500 Index rose 25.22 points to 2,099.50 points while the Dow surged 227.11 points to end at 18,076.19. 

The FBM KLCI  moved in a volatile and firmer range of 41.41 points for the week with higher volumes of 2.13 billion to 2.49 billion shares traded. The index closed at 1,809.13 yesterday, up 11.56 points from the previous day as blue-chip stocks like British American Tobacco (M) Bhd, KLK Bhd, Petronas Dagangan Bhd, Petronas Gas Bhd and PPB Group Bhd caused the index to rebound on further buying activities. The ringgit was weaker against the US dollar at 3.7060 as Brent crude oil remained softer at US$53.15 (RM195.06) 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 had 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) and 1,774.30 (low).

All the index’s daily signals are mixed for now. Its CCI, DMI and Stochastic indicators are positive, but its MACD and Oscillator are in negative territory. As such, the index’s obvious support levels are seen at 1,774, 1,800 and 1,809,while the resistance areas of 1,815, 1,831 and 1,896 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 neutral on that front. The recent fall from its all-time high of 1,896.23 saw a trough at 1,671.82. The price rebound from 1,671.82 stalled at 1,831.41 (on Feb 4, 2015) and remains below the 200-SMA line of 1,824.32.

Due to the rebound tone for the KLCI, we are recommending a chart “buy” on Prolexus Bhd. The stock has risen steadily despite the          KLCI’s volatility since January 2015. We first initiated chart coverage at RM1.58 on its potential uptrend in our daily report on Jan 28 when we noticed that the stock had been trading higher backed by strong momentum technical indicators. 

Looking at the most recent first quarter of financial year 2015 (1QFY15) results announcement, the group recorded an improved profitability relative to 1QFY14. Prolexus’ higher revenue in 1QFY15 was attributed to the increased revenue in the apparel and advertising divisions. Correspondingly, profit before tax was also higher in 1QFY15 from the better revenue recorded. Further to the announcement, the company expects performance to remain stable in the forthcoming quarter. 

A check of  Bloomberg consensus reveals that no research house covers the stock. Prolexus currently trades at a cheap historical price-earnings ratio of 9.32 times. Its price-to-book value ratio of 2.2 times indicates that its share price is trading at a steep premium to its book value. 

Prolexus’ chart trend on the daily, weekly and monthly time frames is very firmly up. Its share price has made a good surge since its major weekly Wave-2 low of seven sen in November 2010. Since that seven sen low, Prolexus has surged to its March 2015 recent all-time high of RM1.99.

As prices broke below their recent key critical resistance levels of RM1.58 and RM1.74, look to buy Prolexus on any dips to its support areas as the moving averages depict very firm short- to long-term uptrends for this stock. 

The daily, weekly and monthly indicators (like the CCI, DMI, MACD and Oscillator) have issued buy signals and now depict very firm indications of Prolexus’ eventual move towards much higher levels. It would attract firm buying activities at the support levels of RM1.58, RM1.74 and RM1.94. We expect Prolexus to see some profit-taking at its resistance and all-time high of RM1.99. Its upside targets are at RM2.20, RM2.32, RM2.59, RM2.72 and RM3.45.


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 March 20, 2015.