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AMERICAN stock markets closed slightly lower on Wednesday after the US Federal Reserve meeting minutes showed some policymakers were concerned that prices in the US economy are not rising fast enough. The market was expecting some inflection or change to interest policy direction. When there was no clear indication of future interest rate direction, American markets went into a profit-taking mode. The S&P 500 Index inched down 3.08 points to close at 2,048.72 points while the Dow lost 2.09 points to end at 17,685.73.

The FBM KLCI index traded in a narrower range of 22.05 points for the week with slightly lower volumes of 2.11 billion to 1.41 billion shares traded. The index closed at 1,822.29 yesterday, down 2.1 points from the previous day as blue-chip stocks like British American Tobacco (M) Bhd, CIMB Group Holdings Bhd, Kuala Lumpur Kepong Bhd, MISC Bhd, Petronas Dagangan Bhd and RHB Capital Bhd caused the index to decline on persistent selling activities.

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 were trapped in a rangy consolidation with 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), 1,858.09 (high), 1,805.35 (low) and 1,827.40 (high).

Most of the index’s daily signals have turned negative (except Stochastic) recently. As such, the index’s weaker support levels are seen at 1,766, 1,805 and 1,817, while the resistance areas of 1,822, 1,858 and 1,896 would offer very heavy liquidation and profit-taking activities.

The KLCI’s 18 and 40 simple moving averages (SMA) depict a downtrend for its daily chart. In addition, the 50 and 200 SMA have also issued a “Dead Cross” and the index prices are still below these two longer-term SMAs and below the shorter-term 18 and 40 SMAs. Therefore, the recent rebound from the 1,766.22 low has obviously stalled at 1,858.09. This has opened up downside possibilities for the index once again.

Due to the uncertain tone for the KLCI, we are recommending a chart “sell” on AirAsia X Bhd (AAX). AAX recently announced its third quarter of financial year 2014 (3QFY14) results. According to our fundamental analyst, the 3QFY14 core net loss was greater than estimated by the industry. The disappointing result was attributed to low yields due to overcapacity which AAX will reduce its capacity growth in FY14 to FY16 by deferring and selling aircraft. Our analyst has an unchanged “sell” call on AAX with a RM0.57 target price.

A check of the Bloomberg consensus reveals that 11 research houses cover AAX. Of these, there is a single “buy” call, four “hold” calls and six “sell” calls on the stock. This company is currently loss-making with its price-to-book value ratio at 1.68 times indicating a premium to its book value and its debt-to-equity ratio is at 161.5%.

AAX’s chart trend on the daily, weekly and monthly time frames is very firmly down. Its share price made a decline since its major weekly Wave-2 high of RM1.23 in August 2013. Since that RM1.23 high, AAX fell to its November 2014 all-time low of RM0.61.

As prices broke below their recent key critical support levels of RM1 and RM0.69, look to sell AAX on any rebounds to its resistance areas as the MAs depict very firm short- to medium-term downtrends for this stock.

The daily and weekly indicators (like the CCI, DMI, MACD, Oscillator and Stochastic) have issued “sell”signals and now depict very firm indications of AAX’s eventual move towards much lower levels. It would attract firm selling activities at the resistance levels of RM0.615, RM0.69 and RM1. We expect AAX to witness weak buying interest at its support level and all-time low of RM0.61. Its downside targets are located at RM0.56, RM0.43 and RM0.35.

fbmklci_aax_21Nov14


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 November 21, 2014.

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