US markets ended much lower on Wednesday as investors sold stocks in America after a global rout that began in Hong Kong and China. The malaise in China persisted after a round of government support measures failed to allay concerns that margin trades will keep unwinding at a record pace. With the spectre of the post-Greek debt default uncertainty, the SP 500 Index tumbled 34.66 points to 2,046.68 while the Dow Jones Industrial Average plunged 261.49 points to end at 17,515.42.

The FBM KLCI moved in a wider range of 43.4 points for the week with higher volumes of 1.54 billion to 1.99 billion shares traded. The index closed at 1,701.54 yesterday, up 5.71 points from the previous day as blue-chip stocks like AMMB Holdings Bhd (AmBank), Genting Bhd, Kuala Lumpur Kepong Bhd, Maxis Bhd and RHB Capital Bhd caused the index to inch up on some institutional buying activities. The ringgit was slightly firmer against the US dollar at 3.7970 as Brent crude oil eased to US$56.85 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 comprise 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 have turned mainly negative, with its CCI, DMI, Oscillator and Stochastic indicators showing “sell” readings. As such, the index’s weaker support levels are seen at 1,660, 1,676 and 1,685 points, while the resistance areas of 1,701, 1,738 and 1,795 will cap any index rebound.

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

Due to the poorer tone for the KLCI, we are recommending a chart “sell” on AmBank. Maybank-IB has an unchanged “hold” call on AmBank with a target price of RM6.10 (on a price-to-book peg of 1.3 times).

Our banking analyst expects the operating environment to remain challenging for AmBank into financial year 2016 ending March (FY16). He expects the group’s loan growth in FY16 to be fairly subdued at about 4% year-on-year (y-o-y) while net interest margin is expected to compress by about 14 basis points. Positively, the group’s credit costs are expected to remain fairly benign, while ongoing efficiency gains should provide some upside support to earnings. Overall, however, he expects the group’s FY16 earnings to come in relatively flat y-o-y.

A check on Bloomberg consensus reveals that 19 research houses have coverage on the stock, of which there are only three “buy” calls, 11 “hold” and five “sell” calls. Current indicated dividend yields are decent at 5.31%, thus providing downside support to its share price.

AmBank’s chart trend on the daily, weekly and monthly time frames is very firmly down. Its share price has made an obvious plunge since its major weekly Wave-5 and all-time high of RM7.55 in August 2013. Since that RM7.55 high, AmBank has tumbled to its July 2015 recent low of RM5.25.

As prices broke above their recent key critical support levels of RM6.11 and RM5.97, look to sell AmBank on any rallies to its resistance areas as the moving averages depict a very firm short- to long-term downtrend for this stock.

The daily, weekly and monthly indicators (like the CCI, DMI, Oscillator and MACD) have issued clear “sell” signals and now depict firm indications of AmBank’s eventual plunge towards lower levels. It would attract firm selling activities at the resistance levels of RM5.47, RM5.97 and RM6.11. We expect AmBank to witness weaker buying at its support areas of RM4.72, RM5.13 and RM5.25. Its downside targets are located at RM5.02, RM4.84 and RM3.95.

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 10, 2015.