This article first appeared in The Edge Financial Daily, on April 22, 2016.

American equity markets inched up on Wednesday as crude oil rose to a new recent high of US$44.94 (RM174.37). Investors focused on a slate of corporate earnings from IBM and Goldman Sachs that were generally better-than-expected in results season. The Dow gained 42.67 points to 18,096.27, while the S&P 500 inched up 1.6 points to end at 2,102.4.

The FBM KLCI moved in a very narrow range of 16.77 points for the week with marginally higher volumes of 1.49 billion shares to 1.99 billion shares traded. The index closed at 1,721.47 yesterday, up 12.56 points from the previous day as blue-chip stocks like British American Tobacco (Malaysia) Bhd, Genting Bhd, Hong Leong Financial Group Bhd, Petronas Gas Bhd, Public Bank Bhd, Tenaga Nasional Bhd and Westports Holdings Bhd caused the index to rise on buying activities. The ringgit remained steady against the US dollar at 3.8790 despite Brent crude rising to US$44.60 per barrel. 

The FBM KLCI 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 key swings of 1,671.82 (low), 1,867.53 (high), 1,503.68 (low), 1,727.41 (high), 1,600.92 (low) and 1,729.13 (high).

The index managed to surpass the key 62% Fibonacci retracement level of 1,728.54 to a recent high of 1,729.13 on April 14, 2014. Some heavier selling at that level had caused the index to decline and move into a neutral phase for its 18-day and 40-day simple moving averages (SMAs) on its short-term daily chart. However, the index’s price bars are above the 50-day and 200-day daily SMAs and this may depict a better upward phase for the FBM KLCI in the medium to longer term.

The index’s daily signals are mainly mixed, with its Commodity Channel Index (CCI), Directional Movement Index (DMI) and oscillator indicators showing buy signals. Its moving average convergence divergence (MACD) and stochastic indicators are currently negative though. As such, the index’s support levels are seen at 1,676, 1,698 and 1,709, while profit-taking at the resistance areas of 1,721, 1,729 and 1,746 may cap the index’s rise. 

Despite the steady tone for the FBM KLCI, we are recommending a chart “sell” on Cahya Mata Sarawak Bhd (CMSB). The company is involved in cement manufacturing, construction materials, trading, construction, road maintenance, property development, financial services, smelting and education. A check on the Bloomberg consensus reveals that four research houses cover this stock, with four “hold” calls.

Maybank Investment Bank Bhd’s analyst recently downgraded CMSB from a “buy” call to a “hold” call with a target price from RM5.05 to RM4.60. CMSB’s forward earnings growth would be driven by Sacofa Sdn Bhd’s contribution, efficiency gains from its new cement plant, increased construction materials demand and higher construction earnings. However, the earnings may be crimped by potential losses from OM Materials (S) Pte Ltd in 2016 and lower road maintenance earnings.   

CMSB’s chart trend on the daily and weekly time frames is firmly down. From a weekly Wave 5 and all-time high of RM5.98 (July 2015), its prices have turned down strongly on the daily and weekly time frames to a weekly Wave 3 low of RM4.03 (April 2016). CMSB has traced out a head-and-shoulders top, with a very obvious “neckline” breakdown below the key support of RM4.69.

As prices broke above their recent key critical support levels of RM4.69 and RM5, look to sell CMSB on any rallies to its resistance areas as the moving averages depict a very firm short- to medium-term downtrend for this stock. The daily and weekly indicators (like the CCI, DMI, MACD, oscillator and stochastic) have issued clear sell signals and now show firm and obvious indications of CMSB’s eventual plunge towards much lower levels. 

It would attract very weak buying activities at the support levels of RM3.25, RM3.74 and RM4.03. We expect CMSB to witness very heavy activities at its resistance levels of RM4.09, RM4.69 and RM5. Its clear downside targets are located at RM3.73, RM3.40, RM2.67 and RM2.02.

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 every Wednesday and Friday.