US markets rebounded on Wednesday as the August Automatic Data Processing data showed businesses adding 190,000 workers. The August figure improved on the July job figure of 177,000, but was below the 200,000 forecast by economists surveyed by Bloomberg. The S&P 500 Index gained 35.01 points to 1,948.86, while the Dow rose 293.03 points to end at 16,351.38.
In Malaysia, the FBM KLCI moved in a wide range of 76.59 points for the week with lower volumes of 1.71 billion to 2.06 billion shares traded. The index closed at 1,602.75 yesterday, up 12.56 points from the previous day as blue-chip stocks like British American Tobacco (M) Bhd, CIMB Group Holdings Bhd, Genting Bhd, Genting Malaysia Bhd and Sime Darby Bhd caused the index to rise on some rebound buying activities. The ringgit was slightly weaker against the US dollar at 4.2485 as Brent crude rose to US$49.60 (RM209.80) 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), 1,867.53 (high), 1,685.03 (low), 1,744.19 (high), 1,503.68 (low) and 1,660.22 (high).
Most of the index’s daily signals have turned negative, with its CCI, DMI, Stochastic and Oscillator indicators showing very bad sell readings. As such, the index’s support levels are seen at the 1,503, 1,568 and 1,600 levels, while very heavy selling in the resistance areas of 1,605, 1,660 and 1,685 will cap any index rebound. The medium-term downside targets for the index still remain at 1,448 and 1,414.
The KLCI’s 18-day and 40-day simple moving averages (SMAs) depict mild sideways trend for its short-term daily chart, while the 50-day and 200-day SMAs have intersected with a “Death Cross” as well. Therefore, this will not augur well for the index in the medium to longer term.
Furthermore, the KLCI broke a very critical “Neckline” support of a major “Head and Shoulder” pattern on Aug 10. The implied target of such a breakdown pitches the medium-term downside target at 1,448 despite its current minor rebound phase that began on Aug 25 from the 1,503.68 low.
Due to the volatile tone for the KLCI, we recommend a chart “sell” on Alliance Financial Group Bhd (AFG). A check on the Bloomberg consensus reveals that 16 research houses cover the stock, with six “buy” calls, nine “hold” calls and one “sell” call.
The Maybank Investment Bank Bhd analyst has a “hold” call on AFG despite its first quarter of financial year 2016 core net profit of RM122 million coming out below expectations at 21% of his full-year forecast. A key disappointment was higher-than-expected provisions. He lowered AFG’s target price from RM4.70 to RM4. AFG currently trades at a low historical price-earnings ratio of 10.5 times. Its price-to-book value ratio of 1.23 times indicates that its share price is trading at a minor premium to its book value.
AFG’s chart trend in the daily, weekly and monthly time frames is very firmly down. Its share price made an obvious plunge since its major weekly Wave-C high of RM5.26 in July 2013. Since that RM5.26 high, AFG tumbled to its August 2015 low of RM3.40.
As prices broke above its recent key critical support levels of RM4 and RM4.32, look to sell AFG on any rallies to its resistance areas as the moving averages depict a very firm short- to medium-term downtrend for this stock.
The daily, weekly and monthly indicators (like the CCI, DMI and Oscillator) have issued clear “sell” signals and now depict firm indications of AFG’s eventual plunge towards lower levels. It would attract firm selling activities at the resistance levels of RM3.62, RM4 and RM4.32. We expect AFG to witness weaker buying in its support areas of RM2.88, RM3.28 and RM3.40. Its downside targets are located at RM3.04, RM2.91 and RM2.45.
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 on Wednesdays and Fridays.
This article first appeared in digitaledge Daily, on September 4, 2015.