Sudden downturn from 1,867.53 high

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UNITED STATES markets ended lower on Wednesday after weaker-than-estimated data added to concerns about slowing growth before today’s government jobs report.Federal Reserve chair Janet Yellen’s comments that equity valuations are quite high also led to further selling on the American bourses. The SP500 Index lost 9.31 points to 2,080.15 points while the Dow declined 86.22 points to end at 17,841.98. 

In Malaysia, the FBM KLCI moved in a wider range of 25.8 points for the week with lower volumes of 1.92 billion to 1.56 billion shares traded. The index closed at 1,805.10 yesterday, down 15.87 points from Wednesday as blue-chip stocks like British American Tobacco (M) Bhd, Genting Bhd, Hong Leong Financial Group Bhd, PPB Group Bhd and Tenaga Nasional Bhd caused the index to decline on some persistent profit-taking activities. The ringgit was a touch weaker against the US dollar at 3.5950 as Brent crude oil remained firmer at US$66.80 (RM239.81) 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) 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 1,837.28 (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) and 1,867.53 (high).

All the index’s daily signals are negative for now, with its CCI, DMI, MACD, Stochastic and Oscillator indicators showing weaker readings. As such, the index’s weaker support levels are seen at 1,770, 1,774 and 1,800 points, while the resistance areas of 1,805, 1,842 and 1,867 points will cap any index rebound.

The KLCI’s 18-day and 40-day simple moving averages (SMA) depict an emerging downtrend for its daily chart. The recent price bars of the index have just turned below the 50-day and 200-day SMA. As such, the index had taken a swift downturn from its recent 1,867.53 high.

Due to the poorer tone for the KLCI, we are recommending a chart “sell” on Malaysian Steel Works (KL) Bhd (Masteel). Recently, the share price tumbled after investor sentiment dipped after its announcement on April 27 this year to Bursa Malaysia stating that there will be a delay in releasing the audited financial statements for financial year 2014 (FY14). The board of Masteel will be making an application to Bursa to seek an extension of time up to June 30, 2015 to issue the FY14 audited financial statements. 

The delay was due to the external auditors of the company not being able to express an opinion due to various issues pertaining to the classification, description and recoverability of various transactions carried out by the company in FY14. In response to this, the management has initiated a special audit on the issues raised by the external auditors. This special audit is expected to be completed in six weeks’ time.  

A check of the Bloomberg consensus reveals that three research houses cover the stock. Masteel currently trades at a low historical price-earnings ratio of 8.16 times. Its price-to-book value of 0.24 times indicates that its share price is trading at a steep discount to its book value. The company’s current indicative dividend yield is 0.85%.

Masteel’s  chart trend on the daily, weekly and monthly time frames is very firmly down. Its share price made an obvious plunge since its major daily Wave-2 high of RM1.10 on Sept 19, 2014. Since that RM1.10 high, Masteel has tumbled to its May 2015 recent low of 57.5 sen.

As prices broke above its recent key critical support levels of 82 sen and 80 sen, look to sell Masteel on any rallies to its resistance areas as the moving averages depict a very firm short-term downtrend for this stock. 

The daily, weekly and monthly indicators (like the CCI, DMI, MACD, Oscillator and Stochastic) have issued clear “sell” signals and now depict firm indications of Masteel’s eventual plunge towards lower levels. It would attract firm selling activities at the resistance levels of 58.5 sen, 80 sen and 82 sen. We expect Masteel to witness weaker buying at its support areas of 46 sen, 48 sen and 57.5 sen. Its downside targets are located at 53 sen, 37 sen, 28 sen and 17 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 report appears every Wednesday and Friday.

 

This article first appeared in The Edge Financial Daily, on May 8, 2015.