FBM KLCI - likely to further correct downward

Stocks on Bursa Malaysia ended last Friday on a bearish note on continued selling pressure as losses in heavyweights continue to weigh. The benchmark FBM KLCI fell 8.04 points or 0.46% to 1,747.52 after hovering between 1,746.06 and 1,755.82 throughout the day. On a weekly basis, the FBM KLCI shed 39.98 points or 2.24% from 1,787.50 previously. Losers outpaced gainers by 424 to 370, while 310 counters were unchanged. Total volume rose to 2.23 billion units worth RM3.69 billion from 1.61 billion units worth RM1.9 billion yesterday. Weekly turnover declined to 9.07 billion units worth RM11.63 billion from 10.26 billion units worth RM9.94 billion previously.

The FBM KLCI continued its bearish downtrend last week on a confluence of reasons which includes slowing economic growth, disappointing corporate earnings and drop in commodity prices. The local bourse also suffered intensified foreign selling, and capital outflows in the past four weeks were the highest since January. The FBM KLCI opened last Monday 0.48 of a point lower at 1,787.02 and rebounded to hit the intra-day which is also the intra-week high of 1,787.64 briefly after opening, but ended the day 20.12 points or 1.13% lower at 1,767.38 points, weighed down by losses in blue-chips as market sentiment took a hit on worries Tenaga Nasional may buy 1MDB’s power assets at lofty prices. Tuesday saw the FBM KLCI continued its downtrend to shed another 3.31 points to close at 1,767.38 points as investors remained pessimistic about Malaysian shares, bucking the trend of Asian markets that were generally on an uptrend. The FBM KLCI was 9.02 points or 0.51% lower on Wednesday to close at 1,755.05 on across-the-board selling as unfavourable external developments clouded the local market which reacted negatively to the better-than-expected housing and manufacturing data in the US released Tuesday, as this would boost chances of an interest rate hike by the Federal Reserve this year. The FBM KLCI rebounded to close 0.51 point higher at 1,755.56 on Thursday but selling pressure re-emerged on the last hour on Friday which sent the key index 8.04 points lower to end the week at 1,747.52 after hitting an intra-week low of 1,756.06.

On the weekly chart, the FBM KLCI formed a bearish long black candlestick which indicates continuation of selling pressure and downtrend from the previous week, and as the candlestick closed near the low of the week, the FBM KLCI is likely to slide lower in the coming week. On the daily chart, the FBM KLCI formed a black inverted hammer candlestick, a bottom reversal candlestick pattern which indicates the appearance of buying interest initially but was later overcome by the bears. Hence, the FBM KLCI is likely to consolidate today but with a downward bias. Immediate downside support zone is at 1,746 to 1,718 with 1,731 and 1,725 being the intermediate support levels, while the overhead resistance zone is at 1,755 to 1,776.

Weekly MACD slipped below the zero-line and made a dead-cross over the signal-line, issuing a MACD sell signal on the weekly chart and indicated the FBM KLCI has turned bearish on the weekly perspective. Daily MACD continued to slide lower below the zero-line, but its histogram was just marginally lower, indicating a state of consolidation. Weekly RSI (14) slipped lower to 38.5 from 45, indicating the FBM KLCI has turned bearish on the weekly timeframe. Daily RSI (14) was lower at 24.8 from 26.7, indicating the key index is very bearish and oversold. Weekly Stochastic plunged lower to 13.1 and has entered the oversold zone, indicating a very bearish state of the FBM KLCI on the weekly perspective. Daily Stochastic was lower at 5.5 from 9.3, indicating the key index continued to lose strength and is extremely weak. In short, readings from the weekly and daily indicators showed that the key index is bearish and weak on both the weekly and daily timeframe, and is oversold. Hence, the FBM KLCI is likely to further correct downward but an oversold rebound might be expected ahead.

The trend of the FBM KLCI is down and bearish as the key index continued to stay below the short, medium and long term moving averages, and it has also broken the very long term 720-day simple moving average (SMA) last week, indicating very bearish situation and more bearish downward move is expected ahead, and the FBM KLCI is likely to slide lower to test the support of the 960-day SMA, currently at 1,704-point, which has previously given support to the key index on December 17th when the index hit the low of 1,671.82 and rebounded strongly from there. Based on Elliott wave study, the FBM KLCI is in the impulse wave-C, and as it has broken the 100% Fibonacci Projection (FP) target level of 1,751-point on last Friday, the next lower FP is at the 127.2% of 1,731, follow by the 138.2% FP level of 1,723, and 161.8% FP level of 1,706. The 161.8% FP level also coincided with the pivot low of 1,706 formed on January 7th, 2015. Based on Fibonacci Retracement (FR) levels for the range measuring from the pivot low of 1,671.82 to the pivot high of 1,867.52, the next lower support level for the FBM KLCI is at the 76.4% FR level of 1,718 if the 61.8% FR support level at 1,746 cannot hold. For the coming week, the FBM KLCI is likely to continue correct downward with possibility of a technical rebound on oversold technical conditions.

Last Friday, the Dow fell 115.44 points or -0.64% to close at 18,010.68. This week, the FBMKLCI is likely to trade within a range of 1,718 to 1,801, and today, the FBMKLCI is likely to trade within a range of 1,734 to 1,765.

This week's expected range: 1718 – 1801
Today’s expected range: 1734 – 1765

Resistance: 1753, 1759, 1765
Support: 1734, 1740, 1743

Stocks to watch: ABRIC, ARMADA, BINTAI, CAREPLS, DOMINAN, EVERGRN, FBMKLCI-HD, FBMKLCI-HF, FBMKLCI-HI, INARI, KPSCB, MINHO, OMESTI, OPENSYS, PWROOT, SOLID, TMCLIFE

Stock pick highlight: TMCLIFE (0101)

 

Last Price: RM0.695 +0.035
Support Level: RM0.67, RM0.64
Resistance Level: RM0.70, RM0.715, RM0.73, RM0.74, RM0.75, RM0.775, RM0.80, RM0.825, RM0.85, RM0.875, RM0.90
Entry Level: RM0.69 – RM0.70

Technical Analysis

TMCLIFE (0101) rebounded from its intra-day low of 0.67 to close higher at the intra-day high of 0.695. Technically, the chart of TMCLIFE formed a bullish white Marubozu candlestick with increasing volume indicating strong buying interest came into the stock on Friday. It breaks out from the consolidation range forming a W-pattern breakout. MACD swung upward and is above the signal-line and its histogram also extended upward strongly, indicating an increased in momentum to the upside and a buy signal. RSI (14) rose to 64.7 from 51, indicating the stock is turning bullish from a mildly bullish state. Stochastic rose to 73.9 from 50 and is above the slow stochastic line, indicating the stock is turning strong and continuation of the up cycle. The medium and long term trend of TMCLIFE is up, and the short term trend is turning up with the 5-day SMA crossing above the 10-day SMA but both are still below the 30-day SMA, and a confirmed breakout above RM0.70 will see an upside target of RM0.715, follow by RM0.73, RM0.74, RM0.75, RM0.775, RM0.80, RM0.825, RM0.85, RM0.875 and RM0.90.

Since the short term trend is bullish, day traders with shorter time frame perspective may ride on the short term bullishness and buy on breakout level (RM0.70). Those with lower risk appetite should wait at the side-line and buy on the dip.

Price Objective
Short Term – target price at (RM0.715, RM0.73, RM0.74, RM0.75, RM0.775), stop loss (RM0.665)
Mid Term – target price at (RM0.80, RM0.825, RM0.85, RM0.875, RM0.90), stop loss (RM0.635)

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