US equity markets rose on Wednesday as a rally in energy shares like Chevron and Exxon Mobil Corp — as well as some merger activities among beer brewers — led the US indices up before the US Federal Reserve’s Federal Open Market Committee meeting to decide whether to lift US interest rates for the first time since 2006. The S&P 500 Index rebounded 17.22 points to 1,995.31, while the Dow Jones Industrial Average surged 140.1 points to end at 16,739.95.
The FBM KLCI moved in a wider range of 91.23 points for the week with higher volumes of 2.19 billion to 2.29 billion shares traded. The index closed at 1,681.54 yesterday, up 34.39 points from the previous day as blue-chip stocks like British American Tobacco (M) Bhd, Genting Bhd, Kuala Lumpur Kepong Bhd, Public Bank Bhd and Sime Darby Bhd caused the index to rise on some good buying activities. The ringgit was firmer against the US dollar at 4.2560 as Brent crude inched up to US$47.80 (RM202.67) per barrel.
The index rose on a rally from its 801.27 low (October 2008) to its 1,896.23 all-time high (July 2014), and this represented an extended Elliott Wave “flat” rebound in a “pseudo-bull” rise completed. The next few months’ index price movements after July 2014 comprise 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), 1,774.3 (low), 1,867.53 (high), 1,685.03 (low), 1,744.19 (high) and 1,503.68 (low).
The index’s daily signals have all turned slightly positive, with its CCI, DMI, MACD, Oscillator and Stochastic indicators showing buy signals. As such, the index’s firmer support levels are seen at 1,567, 1,614 and 1,681, while profit-taking in the resistance areas of 1,691, 1,722 and 1,744 may cap the index’s advances.
The KLCI’s 18-day and 40-day simple moving averages (SMA) depict an emerging trend for its short-term daily uptrend that began on Aug 25, from the 1,503.68 low. The index’s price bars are now between the 50-day and 200-day SMAs, and this depicts a neutral phase for the longer-term moving averages.
Due to the better tone of the KLCI, we are recommending a chart “buy” on Telekom Malaysia Bhd (TM). A check on the Bloomberg consensus reveals that 29 research houses cover the stock, with nine “buy” calls, 15 “hold” calls and five “sell” calls.
Maybank Investment Bank Bhd’s (Maybank IB) analyst has a “hold” call on TM with an unchanged target price of RM7.30 as he deemed its first half of financial year 2015 (1HFY15) results as being in line. Its second quarter of FY15 core net profit of RM220 million brought its 1HFY15 net profit to RM391 million. Its 1HFY15 core net profit was 40% of Maybank IB’s full-year forecast. This was in line, as TM tends to enjoy a seasonally stronger 2H due to the completion of managed projects at year end.
TM currently trades at a high historical price-earnings ratio of 33.7 times. Its price-to-book value ratio of 3.33 times indicates that its share price is trading at a major premium to its book value.
TM’s chart trend in the daily, weekly and monthly time frames is very firmly up. Its share price has made an obvious surge since its major daily Wave-C low of RM5.91 on Aug 25. Since then, TM’s share price has risen to its recent September high of RM7.10.
As prices broke above their recent key critical resistance levels of RM6.49 and RM6.76, look to buy TM on any dips to its support areas as the moving averages depict a very firm short- to medium-term uptrend for this stock.
The daily indicators (like the CCI, DMI, MACD, Stochastic and Oscillator) have issued clear “buy” signals and now depict firm indications of TM’s eventual surge towards higher levels. It would attract firm buying activities at the support levels of RM6.49, RM6.76 and RM6.81. We expect TM to witness some profit-taking in its resistance areas of RM7.10, RM7.33 and RM7.54. Its upside targets are located at RM7.50, RM8.29 and RM8.56.
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 September 18, 2015.