A weaker market ahead

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AMERICAN stock markets ended mixed on Wednesday as the European Central Bank failed to bridge differences over Greece’s aid programme. The better earnings results from PepsiCo Inc and Time Warner Inc helped cushion the Dow Jones Industrial Average from its intra-day downward price volatility. The SP500 Index inched down 0.06 point to close at 2,068.53 points while the Dow fell 6.62 points to end at 17,862.14.

In Malaysia, the FBM KLCI moved in a volatile range of 38.10 points for the week with higher volumes of 1.68 billion to 2.47 billion shares traded. The index closed at 1,789.07 yesterday, down 9.88 points from the previous day as blue-chip stocks such as Genting Bhd, MISC Bhd, Petronas Dagangan Bhd, Petronas Gas Bhd and Tenaga Nasional Bhd caused the index to fall on persistent foreign selling activities. The ringgit was weaker against the US dollar at 3.609 as Brent crude oil remained softer at US$55.15 per barrel.

The index rose on a rally from the 801.27 low (Oct 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 had 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), and 1,831.41 (high).

Some of the index’s daily signals are positive (except MACD and Stochastic). As such, the index’s clear support levels are seen at the 1,671, 1,738 and 1,770 levels, while the resistance areas of 1,789, 1,800 and 1,831 will cap any index rebound.

The FBM KLCI’s 18 and 40 simple moving averages depict an emerging uptrend for its daily chart. However, the price bars of the index are now between the 50 and 200 simple moving averages and remains in a neutral position on that front. The recent fall from its all-time high of 1,896.23 saw a low of 1,671.82. The rebound from 1,671.82 stalled at 1,831.41 (on Feb 4, 2015), which remains below the 200-simple moving average line of 1,831.79.

Despite the poorer tone for the FBM KLCI, we are recommending a chart “buy” on Yee Lee Corp Bhd (Yeelee). Yeelee released its third quarter of financial year 2014 (3QFY14) results at the end of November 2014 and its 4QFY14 results could be released in later this month. Looking at the 3QFY14 results announcement, Yeelee recorded revenue growth of 5% in the quarter but saw its profit before tax falling 23%. According to Yeelee, the poor profitability was due to lower contributions from the manufacturing and trading divisions.  

Overall, the fundamentals for Yeelee appeared to be unfavourable and the termination of its distribution agreement with Red Bull Asia FZE in early January 2015 had little effect. This suggests that the market had already priced in the negative news. Despite its poorer results for the previous quarter, investors continued to show a keen interest in the stock.

A check of the Bloomberg consensus reveals that two research houses cover Yeelee with two “buy” calls. This stock currently trades at a low price-earnings ratio of 10.2 times while its price-to-book ratio of 0.92 times indicates that its share price is trading at a minor discount to its book value.

Yeelee’s chart trend on the daily, weekly and monthly time frames is very firmly up. Its share price made a good surge since its major daily Wave-5 low of RM1.24 in December 2014. Since that RM1.24 low, Yeelee surged to its February 2015 recent high of RM1.77.

As prices broke below its recent key critical resistance levels of RM1.45 and RM1.58, look to buy Yeelee on any dips to its support areas as the moving averages depict very firm short- to long-term uptrends for this stock.

The daily and weekly indicators (like the CCI, DMI, MACD and Oscillator) have issued buy signals and now depict very firm indications of Yeelee’s eventual move towards much higher levels. It would attract firm buying activities at the support levels of RM1.45, RM1.58 and RM1.77. We expect Yeelee to witness some profit-taking at its resistance levels of RM1.83 and RM1.93. Its upside targets are located at RM1.83, RM1.91, RM2.09 and RM2.60.

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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 February 13, 2015.