US equity markets ended mixed on Wednesday after Apple Inc reported its first quarterly revenue contraction in more than a decade and forecast another decline in its next set of results. Despite Boeing’s quarterly earnings miss, it rose US$3.84 (RM14.98) to counteract Apple’s price fall of US$6.53. The Dow gained 51.23 points to 18,041.55, while the S&P 500 inched up 3.45 points to end at 2,095.15
The FBM KLCI moved in a wider range of 45.79 points for the week with higher volumes of 1.73 billion shares to 2.91 billion shares traded. The index closed at 1,674.76 yesterday, down 17.58 points from the previous day as blue-chip stocks like Axiata Group Bhd, British American Tobacco (M) Bhd (BAT), Genting Bhd, Maxis Bhd, SapuraKencana Petroleum Bhd and Tenaga Nasional Bhd caused the index to plunge on heavy liquidation activities. The ringgit was slightly weaker against the US dollar at 3.8980 despite Brent crude rising to US$46.15 per barrel.
The FBM KLCI 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 1,671.82 (low), 1,867.53 (high), 1,503.68 (low), 1,727.41 (high), 1,600.92 (low) and 1,729.13 (high).
The index managed to surpass the key 62% Fibonacci retracement level of 1,728.54 to a recent high of 1,729.13 on April 14, 2016. Some heavier selling at that level had caused the index to decline and move into a downward phase for its 18- and 40-day simple moving averages (SMAs) on its short-term daily chart. The index’s price bars are between the 50- and 200-day daily SMAs and this depicts a neutral phase for the FBM KLCI in the medium to longer term.
The index’s daily signals are all negative, with its Commodity Channel Index (CCI), Directional Movement Index (DMI), moving average convergence divergence (MACD), oscillator and stochastic indicators all depicting sell signals. As such, the index’s weaker support levels are seen at 1,600, 1,651 and 1,671, while heavy liquidation at the resistance areas of 1,674, 1,700 and 1,729 may cap the index’s rise.
Due to the weaker tone of the FBM KLCI, we are recommending a chart “sell” on BAT. The company manufactures, imports and sells cigarettes, pipe tobaccos, cigars and luxury consumer products. A check on the Bloomberg consensus reveals that 18 research houses cover this stock, with four “buy” calls, seven “hold” calls and seven “sell” calls.
Maybank Investment Bank Bhd’s analyst recently maintained BAT as a “hold” call, but lowered its target price from RM55 to RM50. BAT’s first quarter of financial year 2016 (1QFY16) results disappointed on a higher-than-expected volume contraction in the domestic market post the excise tax hike in November 2015. Its 1Q domestic market share was down 2.3 percentage points compared with FY15. Amid contraction of industry volumes and some market share, our analyst cut FY16/FY17/FY18 earnings by 16%, 11% and 14% respectively.
BAT’s chart trend on the daily, weekly and and monthly time frames is firmly down. From a weekly Wave 5 and all-time high of RM69.87 (Decemnber 2014), its prices have turned down strongly on the daily and weekly time frames to a weekly Wave 3 low of RM47.70 (April 2016). BAT has broken a bearish symmetrical triangle, with a very obvious price break below its key support trend line.
As prices broke above their recent key critical support levels of RM54.14 and RM52.38, look to sell BAT 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, MACD, oscillator and stochastic) have issued clear sell signals and now show firm and obvious indications of BAT’s eventual plunge towards much lower levels.
It would attract very weak buying activities at the support levels of RM42.77, RM45.48 and RM45.92. We expect BAT to witness very heavy activities at its resistance levels of RM47.70, RM52.38 and RM54.14. Its clear downside targets are located at RM47.22, RM43.25, RM35.40, RM34.22 and RM29.75.
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 every Wednesday and Friday.
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