A rebound from the 1,688.44 low

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United States markets ended higher on Wednesday as investors bought stocks on better-than-expected American economic data. The June ADP data saw private employers adding 237,000 jobs, and May construction spending rose to its highest level in over six years. 

Despite the Greek debt default in late June, the SP 500 Index rose 14.31 points to 2,077.42 points while the Dow surged 138.4 points to end at 17,757.91. 

In Malaysia, the FBM KLCI moved in a wider range of 50.23 points for the week with higher volumes of 1.46 billion to 1.94 billion shares traded. The index closed at 1,733.88 on July 2, up 5.92 points from the previous day as blue-chip stocks like British American Tobacco (M) Bhd, Genting Bhd, Hong Leong Bank Bhd, Kuala Lumpur Kepong Bhd, Malayan Banking Bhd, and Petronas Chemicals Group Bhd caused the index to rise on some local institutional buying activities. The ringgit was weaker against the US dollar at 3.7740 as Brent crude oil remained flat at US$61.20 per barrel. 

The index rose on a rally from the 801.27 low (October 2008) to its 1,896.23 all-time high (July 2014), representing an extended Elliott Wave “Flat” rebound in a “Pseudo-Bull” rise completed. The next few months’ index price movements since July 2014 comprised of 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), 1,774.30 (low), 1,867.53 (high) and 1,688.44 (low).

All the index’s daily signals have turned mixed for now, with its CCI, MACD and Stochastic indicators showing positive readings while the DMI and Oscillator remain negative. As such, the index’s obvious support levels are seen at 1,671, 1,688 and 1,733, while the resistance areas of 1,738, 1,756 and 1,795 will cap any index rebound.

The KLCI’s 18-day and 40-day simple moving averages (SMA) depict a neutral trend for its short-term daily chart currently. As such, the index may rebound in the short term. However, the recent price bars of the index have turned below the 50-day and 200-day SMA with a “Death Cross”. This may not augur well for the index, as the longer-term trend of the index is still bearish.

For the current retracement phase, the rebound of the index could stall at the key 38.2%, 50% and 61.8% retracement cluster prices of 1,740.03, 1,755.97, 1,756.85, 1,771.91 and 1,777.98. 

Due to the rebound tone for the KLCI, we are recommending a chart “buy” on United U-Li Corp Bhd. Looking at the most recent first-quarter financial year 2015 (1QFY15) results announcement, the group recorded a higher 

revenue of RM44.2 million compared with RM42.9 million in 1QFY14. The better top-line number was attributed to improved demand for the group’s core product. 

Correspondingly, profit before tax was slightly higher at RM6.1 million in 1QFY15 compared with   RM5.7 million in 1QFY14. United U-Li also managed to improve its profit margin in 1QFY15. Further to the announcement, United U-Li remains positive with the implementation of various major infrastructure projects under the Economic Transformation Programme.

A check on the Bloomberg consensus reveals that no research house covers the stock. The stock currently trades at a high historical price-earnings ratio of 24.5 times. Its price-to-book value ratio of 2.78 times indicates that its share price is trading at a steep premium to its book value. 

United U-Li’s chart trend on the daily, weekly and monthly time frames is very firmly up. Its share price has made a good surge since its major weekly Wave-2 low of RM0.56 in February 2012. Since that RM0.56 low, United U-Li has surged to its July 2015 recent all-time high of RM4.47.

As prices broke above their recent key critical resistance levels of RM3.69 and RM4.23, look to buy United U-Li has on any dips to its support areas as the moving averages depict very firm short- to long-term uptrends for this stock. 

The daily, weekly and monthly indicators (like the CCI, DMI, MACD, Stochastic and Oscillator) have issued “buy” signals and now depict very firm indications of United U-Li’s eventual surge towards much higher levels. It would attract firm buying activities at the support levels of RM3.69, RM4.23 and RM4.46. We expect United U-Li to witness some profit-taking at its resistance area and all-time high of RM4.47. Its upside targets are RM4.96, RM5.37, RM5.74, RM5.94 and RM7.44.


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 July 3, 2015.