AMERICAN markets ended marginally lower on Wednesday as the US dollar rose to a 12-year high against the euro after the European Central Bank’s (ECB) bond-buying programme set in. Finance stocks gained but a price slump in consumer and technology stocks caused the American indices to decline slightly. The SP500 Index inched down 3.92 points to 2,040.24 points while the Dow fell 27.55 points to end at 17,635.39.
In Malaysia, the FBM KLCI moved in a wild and weaker range of 24.08 points for the week with higher volumes of 2.14 billion to 2.95 billion shares traded. The index closed at 1,786.87 on March 12, up 8.71 points from the previous day as blue-chip stocks like British American Tobacco (M) Bhd, Genting Bhd, Hong Leong Bank Bhd, Hong Leong Financial Group Bhd and Public Bank Bhd caused the index to rebound on minor nibbling activities. The ringgit was weaker against the US dollar at 3.6920 as Brent crude oil remained softer at US$57.50 (RM211.60) per barrel.
The index rose on a rally from the 801.27 low (Oct 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), and 1,831.41 (high).
All the index’s daily signals are negative for its CCI, DMI, MACD, Oscillator and Stochastic indicators. As such, the index’s weaker support levels are seen at the 1,706, 1,738 and 1,770-levels, while the resistance areas of 1,786, 1,799 and 1,831 will cap any index rebound.
The FBM KLCI’s 18 and 40 simple moving averages (SMA) depict a downtrend for its daily chart. In addition, the price bars of the index are now below the 50 and 200 SMA and remains in a downtrend on that front too. 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 1,826.36.
Due to the poorer tone for the FBM KLCI, we are recommending a chart “sell” on AirAsia Bhd. Our Maybank Investment Bank Bhd (Maybank-IB) fundamental analyst also downgraded the stock to a “hold” call (from “buy”) with a new lowered target price of RM2.65 (from RM2.94) on an earnings revision.
Looking at our fundamental analyst’s latest result review report, he highlighted that core net profit for financial year 2014 (FY14) of RM407 million (-27%) was below Maybank’s and consensus estimates. Load factors had declined considerably (-6.7 percentage points year-on-year) in the fourth quarter of FY14 which implies that AirAsia had been losing market share to its competitors. He also pointed out that competition from Malaysia Airlines (MAS) and Malindo Air is biting hard and forcing AirAsia to play defensively. Furthermore, many cost items (staff, finance and other expenses) surged significantly, which was unexpected.
Going forward, our analyst expects the first half of FY15 to remain challenging for AirAsia, with both MAS and Malindo remaining comfortable with their respective growth plans.
A check of Bloomberg consensus reveals that 19 research houses have coverage on AirAsia. Of the 19 research houses, there are 13 “buy” calls and six “hold” calls.
AirAsia currently trades at a lofty, historical price-earning ratio of 78.3 times. Its price-to-book value ratio of 1.44 times indicates that its share price is trading at a steep premium to its book value.
AirAsia’s chart trend on the daily, weekly and monthly time frames is very firmly down. Its share price made an obvious decline since its recent high of RM2.94 on Dec 26, 2014. Since that RM2.94 high, AirAsia fell to its recent low of RM2.32 in March 2015.
As prices broke below its recent key critical support levels of RM2.62 and RM2.48, look to sell AirAsia on any rebounds to its resistance areas as the moving averages depict very firm short- to long-term downtrends for this stock.
The daily, weekly and monthly indicators (like the CCI, DMI and MACD) have issued sell signals and now depict very firm indications of AirAsia’s eventual move towards much lower levels. It would attract firm selling activities at the resistance levels of RM2.35, RM2.48 and RM2.62. We expect AirAsia to witness weak buying interest at its supports of RM1.93, RM2.18 and RM2.32. Its downside targets are located at RM2.10, RM1.64 and RM1.44.
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 13, 2015.