This article first appeared in The Edge Financial Daily, on May 6, 2016.
US equity markets ended lower on Wednesday, on weaker-than-expected private-sector jobs data, and a slide in worker productivity eclipsed some strength in the services sector. April Automatic Data Processing employment data came in at 156,000 jobs, short of the 200,000 jobs expected. Productivity of US businesses and workers fell 1% annually in the first quarter of 2016, marking a fourth decline in the last six quarters. The Dow Jones Industrial Average tumbled 99.65 points to 17,651.26, while the S&P 500 Index plunged 12.25 points to end at 2,051.12.
The FBM KLCI tumbled in a wider range of 40.79 points for the week, with lower volumes of 1.4 billion to 1.7 billion shares traded. The index closed at 1,645.09 yesterday, down 12.49 points from the previous day, as blue-chip stocks like Genting Malaysia Bhd, IOI Corp Bhd, Petronas Dagangan Bhd, PPB Group Bhd and Public Bank Bhd caused the index to decline on heavy liquidation activities. The ringgit was much weaker against the US dollar at 4.0080, despite Brent crude rising to US$45.09 (RM180.36) 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 this represented 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, 2016. Very heavy liquidation at that level had caused the index to decline and move in a downward phase for its 20-day and 50-day simple moving averages (SMAs) on its short-term daily chart. The index’s price bars are now below the 50-day and 200-day SMAs, and this depicts a downward phase for the FBM KLCI in the medium to longer term.
The index’s daily signals are mainly negative, with its Commodity Channel Index (CCI), Directional Movement Index (DMI), moving average convergence divergence (MACD) and oscillator indicators all depicting very obvious sell signals. As such, the index’s weaker support levels are seen at 1,567, 1,600 and 1,636, while very heavy liquidation at resistance areas of 1,645, 1,700 and 1,729 will cap the index’s rise. Should any rebounds appear, the key Fibonacci retracement levels to sell on the FBM KLCI are 1,659.23, 1,668.68, 1,671.61, 1,678.76, 1,682.59, 1,688.83 and 1,693.57.
Due to the very weak tone of the FBM KLCI, we are recommending a chart “sell” on Globetronics Technology Bhd. The company manufactures and assembles integrated circuits, optoelectronics products, technical ceramic substrates, electrostatic-sensitive device protective materials, small outline components, technical plating services and packaging materials. A check on the Bloomberg consensus reveals that five research houses cover this stock, with five “hold” calls.
Maybank Investment Bank Bhd’s analyst recently downgraded Globetronics from “buy” to a “hold” call and lowered its target price from RM6.90 to RM3.90. Globetronics’ first quarter of financial year 2016 (1QFY16) net profit of RM4 million was disappointing as its operating margin collapsed on weaker revenue, exacerbated by foreign-exchange translation losses. Quarter-on-quarter, 1QFY16 revenue fell 24% on weaker demand across the board for all products.
Globetronics’ chart trend in the daily, weekly and and monthly time frames is firmly down. From a weekly Wave 5 and all-time high of RM6.80 (January 2016), its share price has plunged 45.9% in the daily and weekly time frames to a weekly Wave 3 low of RM3.12 (May 2016).
As its share price broke above its recent key critical support levels of RM4.38 and RM5.05, look to sell Globetronics on any rallies to its resistance areas as the moving averages depict a very firm short- to long-term downtrend for this stock. The daily, weekly and monthly indicators (like the CCI, DMI and MACD) have issued clear sell signals, and now show firm and obvious indications of Globetronics’ eventual plunge towards much lower levels.
It would attract very weak buying activities at the support levels of RM2.81, RM3.12 and RM3.33. We expect Globetronics to witness very heavy activities at its resistance levels of RM3.44, RM4.38 and RM5.05. Its clear downside targets are located at RM2.69, RM1.90 and 70 sen.
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.