AMERICAN stock markets inched up on Wednesday as energy producers gained with the price of oil rebounding somewhat. European equities also rose but Treasuries fell on speculation that the European Central Bank (ECB) will provide further economic stimulus though asset purchases. The S&P 500 Index rose 9.57 points to close at 2,032.12 points while the Dow gained 39.05 points to end at 17,554.28.
The FBM KLCI index gyrated in a volatile range of 42.41 points for the week with higher volumes of 1.92 billion to 2.58 billion shares traded. The index closed at 1,781.75 yesterday, up 11.66 points from the previous day as blue-chip stocks such as British American Tobacco (M) Bhd, Genting Bhd, Hong Leong Financial Group Bhd, Petronas Dagangan Bhd and Petronas Gas Bhd caused the index to rise on local buying activities. The ringgit remained a touch firmer against the US dollar at 3.6030 as Brent crude oil rebounded slightly to US$46.58 (RM167.68) per barrel.
The index rose on a rally from the 801.27 low (October 2008) to the previous 1,826.22 all-time high (May 2013) and it represented an extended Elliott Wave “Flat” rebound in a “Pseudo-Bull” rise completed. The next few months’ index price movements since May 2013 have key swings of 1,723.74 (low), 1,811.65 (high), 1,660.39 (low), 1,805.15 (high), 1,759.66 (low), 1,882.20 (high), 1,769.80 (low), 1,838.69 (high), 1,802.88 (low), 1,896.23 (high), 1,837.28 (low), 1,879.62 (high), 1,766.22 (low), 1,858.09 (high) and 1,671.82 (low).
All the index’s daily signals turned positive recently. As such, the index’s clear support levels are seen at 1,671, 1,745 and 1,781 while the resistance areas of 1,788, 1,805 and 1,858 may cap any index rebound.
The KLCI’s 18 and 40 simple moving averages (SMA) depict an emerging uptrend for its daily chart. However, the price bars of the index are now between the 50 and 200 SMA and remain in a neutral position on that front. With the recent price movement above the key 1,770 resistance, this has negated the KLCI’s downside target of 1,630 for now.
Due to the improving tone for the KLCI, we are recommending a chart “buy” on Sunzen Biotech Bhd (Sunzen). Sunzen released its third quarter of 2014 (3Q14) results at the end of November 2014, and will announce its 4Q14 results in February. In its 3Q14 result announcement, revenue declined 5.8% year-on-year while profit-before-tax tumbled 93%.
According to Sunzen’s announcement, the poor profitability was due to provision for impairment of inventories and provision for write-off on receivables as well as the increase in marketing and distribution expenses.
Overall, the fundamentals for Sunzen appeared to be unfavourable but this may have been factored into the share price which fell marginally in December 2014. Despite the previous quarterly results, investors continued to show a keen interest in the stock.
A check of the Bloomberg consensus reveals that no research houses cover Sunzen. This stock currently trades at a high price-earnings ratio of 50.9 times while its price-to-book value ratio of 2.71 times indicates that its share price is trading at a steep premium to its book value.
Sunzen’s chart trend on the daily, weekly and monthly timeframes is very firmly up. Its share price has made a large surge since its major weekly Wave-2 low of RM0.12 in May 2012. Since that RM0.12 low, Sunzen has surged to its January 2015 recent all-time high of RM0.60.
As prices broke below their recent key critical resistance levels of RM0.39 and RM0.47, look to buy Sunzen on any dips to its support areas as the moving averages depict very firm short- to medium-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 Sunzen’s eventual move towards much higher levels. It would attract firm buying activities at the support levels of RM0.39, RM0.47 and RM0.59. We expect Sunzen to witness some profit-taking at its resistance level and all-time high of RM0.60. Its upside targets are RM0.65, RM0.98 and RM1.23.
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 January 23, 2015.