AMERICAN stock markets closed slightly higher on Wednesday amid optimism that the economy is showing steady progress in the labour market. The private ADP Research Institute report showed companies added 208,000 workers in November. The SP500 Index inched up 7.78 points to close at 2,074.33 points whilst the Dow gained 33.37 points to end at 17,912.92.

In Malaysia, the FBM KLCI index gyrated in a very wide range of 77.90 points for the week with volumes of 2.76 billion to 1.56 billion traded. The index closed at 1,745.69 yesterday down 12.46 points from the previous day as blue chip stocks like DiGi.Com Bhd, MISC Bhd, PPB Group Bhd, RHB Capital Bhd and Tenaga Nasional Bhd caused the index to decline on persistent selling activities. Rampant foreign selling activities took the index down 75.20 points from last Friday’s closing level of 1,820.89. The ringgit was weaker against the US dollar at 3.4485 as Brent crude oil tumbled to US$69.72 (RM240).

The index rose on a rally from the 801.27 low (October 2008) to the previous 1,826.22 all-time high (May 2013) and it represents an extended Elliott Wave “Flat” rebound in a “Pseudo-Bull” rise completed. The next few months’ index price movements since May 2013 had key swings of 1,723.74 (low), 1,811.65 (high), 1,660.39 (low), 1,805.15 (high), 1,759.66 (low), 1,882.20 (high), 1,769.80 (low), 1,838.69 (high), 1,802.88 (low), 1,896.23 (high), 1,837.28 (low), 1,879.62 (high), 1,766.22 (low) and 1,858.09 (high).

All the index’s daily signals have turned negative recently. As such, the index’s weaker support levels are seen at the 1,660, 1,702 and 1,743 levels, whilst the resistance areas of 1,745, 1,789 and 1,858 will cap any index rebound.

The KLCI’s 18 and 40 simple moving averages (SMAs) depict an obvious downtrend for its daily chart. In addition, the 50 and 200 SMAs have also issued a “Dead Cross” and the index prices are now below these two longer-term SMAs.

The index appears to be in a severe downtrend since the 1,896.23 high of July 2014. Compounding the index’s bearish tone is also a break of the critical neckline support of a “Head and Shoulders Top” pattern. With the break of the neckline, the KLCI index is headed to 1,630.87 in the medium term. Intermediate short-term downside targets are 1,705 and 1,696.

Due to the much weaker tone for the KLCI index, we are recommending a chart “sell” on Puncak Niaga Bhd. Puncak Niaga recently released its third quarter of financial year 2014 (3QFY14) results announcement at the end of November that showed nine months FY14 estimates (9MFY14E) revenue decline by 7.1% and profit before tax fell 16.8% compared with the 9MFY13E period. Further to the announcement, the lower profitability was due to sluggish revenue contributions from its oil and gas, and construction segments, together with higher finance costs and provision of impairment loss on trade receivables.

A check of the Bloomberg consensus reveals that five research houses have coverage on Puncak Niaga. Of the five, there are three “buy” calls and two “neutral” calls. This stock currently trades at a reasonable and low price-earnings ratio of 5.92 times, while its price-to-book value ratio of 0.60 times indicates that its share price is trading at a steep discount to its book value. The reported shareholding changes on Bloomberg revealed there was net selling from both local and foreign investors over the past month.

Puncak Niaga’s chart trend on the daily and weekly timeframes is very firmly down. Its share price made a large decline since its major weekly Wave-5 high of RM3.76 in June 2014. Since that RM3.76 high, Puncak Niaga fell to its December 2014 recent low of RM2.66.

As prices broke below its recent key critical support levels of RM3.30 and RM3.05, look to sell Puncak Niaga on any rebounds to its resistance areas as the moving averages depict very firm short- to medium-term downtrends for this stock.

The daily and weekly indicators (like the CCI, DMI, MACD and Stochastic) have issued “sell” signals and now depict very firm indications of Puncak Niaga’s eventual move towards much lower levels. It would attract firm selling activities at the resistance levels of RM2.74, RM3.05 and RM3.30. We expect Puncak Niaga to witness weak buying interest at its support levels of RM2.05, RM2.27 and RM2.49. Its downside targets are located at RM2.13, RM1.95 and RM1.38.

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 December 5, 2014.