US markets surged on Wednesday as investors bought up oversold shares after the New York Federal Reserve (Fed) president William C Dudley stated that the Fed’s September interest rate hike may not be on the cards. A better set of the US July durable goods orders also aided the big American equity surge. The S&P 500 Index surged 72.90 points to 1,940.51 whilst the Dow gained 619.07 points to end at 16,285.51. 

In Malaysia, the FBM KLCI Index moved in a wild range of 98.02 points for the week with higher volumes of 2.11 billion shares to 2.78 billion shares traded. The index closed at 1,601.70 yesterday, up 21.33 points from the previous day, as blue chips like AMMB Holdings Bhd, Britisth American Tobacco (M) Bhd, Hong Leong Financial Group Bhd, PPB Group Bhd, Public Bank Bhd and UMW Holdings Bhd caused the index to rise on some rebound buying activities. The ringgit was weaker against the US dollar at 4.2320 as Brent crude oil inched up to US$42.75 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 comprised of 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), 1,774.30 (low), 1,867.53 (high), 1,685.03 (low), 1,744.19 (high) and 1,503.68 (low).

Most of the index’s daily signals have turned negative, with its CCI, DMI, MACD and Oscillator indicators showing very bad sell readings. As such, the index’s support levels are seen at the 1,503, 1,554 and 1,601 levels, while very heavy selling at the resistance areas of 1,606, 1,624 and 1,685 may cap any index rebound. The medium-term downside targets for the index are now located at 1,448 and 1,414.

The FBM KLCI’s 18-day and 40-day simple moving averages (SMA) depict a clear downtrend for its short-term daily chart whilst the 50-day and 200-day SMA have also intersected with a “Death Cross” as well. Therefore, this will not augur well for the index in the short to longer term. 

Furthermore, the FBM KLCI had broken a very critical “Neckline” support of a major “Head and Shoulder” pattern on Aug 10, 2015. The implied target of such a breakdown pitches the medium-term downside target at 1,448 despite its current minor rebound phase that began on Tuesday.

Due to the rebound tone for the FBM KLCI Index, we are recommending a chart “buy” on Lii Hen Industries Bhd (Lii Hen). A check on the Bloomberg consensus reveals that no research house has covered the stock. Lii Hen currently trades at a low historical price-earnings ratio of 9.77 times. Its price-to-book value ratio of 3.32 times indicates that its share price is trading at a major premium to its book value.

Lii Hen’s chart trend on the daily, weekly and monthly time frame is very firmly up. Its share price made a fantastic surge since its major weekly Wave-2 low of RM1.11 in August 2013. Since that RM1.11 low, Lii Hen surged to its August 2015 recent all-time high of RM6.10.

As prices broke above its recent key critical resistance levels of RM4.80 and RM5.36, look to buy Lii Hen 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, Oscillator and Stochastic) have issued firm buy signals and now depict very firm indications of Lii Hen’s eventual surge towards much higher levels. It would attract firm buying activities at the support levels of RM4.80, RM5.36 and RM6.09. We expect Lii Hen to witness some profit-taking at its resistance area and all-time high of RM6.10. Its upside targets are located at RM6.30, RM7.30, RM7.80 and RM8.71.

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 on Wednesdays and Fridays.

This article first appeared in digitaledge Daily, on August 28, 2015.