Market Technical Reading - Trading Sentiment To Stay Bearish... - 30/6/2010

PP 7767/09/2010(025354) MARKET DATELINE

Malaysia

3 RHB Research Institute Sdn Bhd A member of the RHB Banking Group

Technical Research

Company No: 233327 -M

Da ily T rad ing S trat egy

30 June 2010

Market Technical Reading Trading Sentiment To Stay Bearish... Chart 2: FBM KLCI Intraday

Chart 1: FBM KLCI Daily

Local Market Leads:

♦

The local bourse, in line with the regional market slump, fell on afternoon selldown in China’s SHComp (-4.3%) and HSI (-2.3%) after the Confidence Board in China said its Leading Economic Indicator rose 0.3% in Apr, less than the initial 1.7% gain reported on 15 Jun earlier.

♦

The regional indices like Nikkei 225 (-1.27%) and FTSTI (-1.38%) fell steeply, while the European key indices like FTSE 100 (-2%), GDax (-2.2%) and CAC 40 (-2.7%) plunged in their early trading yesterday.

♦

Locally, the FBM KLCI benchmark reversed its early gain of 5.5 pts from 1,331.04 to a low of 1,315.84 with a loss of 9.7 pts in the afternoon, before closing the day at 1,319.84, losing 5.7 pts or 0.43%.

♦

As investors turned nervous, recent speculative issues like KEuro (10.5sen), Gamuda-WD (-10sen) and Time (3.5sen) fell on strong profit-taking pressure.

♦

Overall turnover increased to 741m shares from Monday’s 535m shares, but market breadth deteriorated with losers overwhelming gainers by a ratio of almost 3 to 1.

Technical Interpretations:

♦

The FBM KLCI registered a huge bearish candle on the chart, following a “negative harami” candle recorded a day ago. This indicates a resumption of the previous selling momentum likely today.

♦

Yesetrday’s closing also marked the first day that the index dipped to below the 10-day SMA of 1,321 since early Jun. This suggests that the index is now trading in a negative immediate-term trend.

♦

Technically, the index should head towards the 40-day SMA of 1,309, before retesting the strength of the psychological level at 1,300.

♦

With both the momentum indicators remaining weak, the risk is fairly high for the index to fall below 1,300 if buying support fails to return today. Further support is only seen at 1,250. Please read important disclosures at the end of this report.

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30 June 2010 Daily Trading Strategy:

♦

As expected, the index failed to maintain the sideways trend and sealed with a bearish candle on the chart yesterday.

♦

Given yesterday’s fall to below the 10-day SMA of 1,321, the immediate-term trend for the FBM KLCI has turned negative.

♦

In fact, the index is poised to revisit the crucial 1,300 psychological stronghold today, should the 40-day SMA of 1,309 fail to curb selling activities, in our view.

♦

Also, dampened further by the overnight plunge in Wall Street, as well as the global markets’ retreat yesterday, trading sentiment is likely to stay bearish today.

♦

As a result, we remain bearish on the local market outlook.

Table 1 : Daily Statistics Scoreboard 23 June Gainers 360 Losers 275 Unchanged 271 Untraded 456 Market Cap Turnover (mln shares) Value (RM mln) Currency MYR vs US Dollar

24 June 318 332 294 418

25 June 251 370 278 463

28 June 227 340 241 505

29 June 175 514 252 423

685

749

568

535

741

1,118

1077

923

778

1,059

3.2335

3.2310

3.2430

3.2230

3.2505

Source: RHBInvest & Bloomberg

Table 2 : Major Indices & Commodities Change Change Local Key Indices Closing (Pts) (%) FBM KLCI 1,319.84 -5.70 -0.4 FBM 100 8,678.97 -38.93 -0.4 FBM ACE 3,783.20 -50.98 -1.3 Major Overseas Indices Dow Jones 9,870.30 -268.22 -2.6 Nasdaq 2,135.18 -85.47 -3.8 S&P 500 1,041.24 -33.33 -3.1 FTSE 4,914.22 -157.46 -3.1 Hang Seng 20,248.90 -477.78 -2.3 Jakarta Composite 2,893.37 -62.36 -2.1 Nikkei 225 9,570.67 -123.27 -1.3 Seoul Composite 1,707.76 -24.27 -1.4 Shanghai Composite 2,427.05 -108.23 -4.3 SET 799.09 -5.31 -0.7 FT Straits Times 2,830.34 -39.65 -1.4 Taiwan Weighted 7,423.57 -77.22 -1.0 India Sensex 17,534.09 -240.17 -1.4 Major Commodities NYMEX Crude Oil (US$/barrel) 75.94 -2.31 -3.0 MDEX CPO – Third Month (RM/metric ton) 2,366.00 -34.00 -1.4 US Interest Rate Current Last Updated 22-23 Jun Overnight Fed Fund Rate 0-0.25% Unch 2010 Next FOMC meeting 10 Aug 2010

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30 June 2010

Chart 4: FKLI Intraday

Chart 3: FKLI Daily

Technical Interpretations:

♦

Dampened by the global selldown yesterday, the local futures market gave back more than what it had gained on the past two trading days.

♦

The FKLI fell sharply with a huge bearish candle, reversing its two positive candles recorded earlier.

♦

The closely watched FKLI for Jul contract fell 18 pts or 1.35% yesterday to 1,315, while the expiring Jun contract closed the day at 1,315.5, losing 16.5 pts or 1.24% for the day.

♦

The futures index also closed the day at below the supportive 10-day SMA of 1,324, suggesting a likelihood of a negative immediate-term trend ahead.

♦

Given the poorer momentum readings on the indicators, the futures index is due to retest the 40-day SMA near 1,308 and to cover the technical gap formed in mid Jun at 1,302 to 1,304.5, before rechallenging the psychological support at 1,300.

♦

Technically, with the current negative tone on the short-term chart layout, chances are high that the futures index may lose the 1,300 stronghold on strong follow-through selling momentum in the near term.

♦

Upon further breakdown, we expect the FKLI to retreat further to the 1,270 support level, with an additional support at May’s low of 1,240.5.

Daily Trading Strategy:

♦

Immediate-term negative outlook ahead, due to a sudden reversal from the recent positive candles.

♦

Traders should exit from their recent “long” call, as there is a strong likelihood that the futures index may ease further in the next few sessions.

♦

For today, the futures index is likely to fluctuate from 1,307 to 1,320.

Table 3: FKLI Closings FKLI (Month) Contracts Open Jun 10 1329.50 Jul 10 1329.50 Sep 10 1330.50 Dec 10 1331.00

High 1334.50 1335.00 1334.00 1331.50

Low 1312.00 1312.00 1311.00 1313.00

Close 1315.50 1315.00 1314.50 1315.00

Chg (Pts) -16.50 -18.00 -16.50 -15.50

Settle 1315.50 1315.00 1314.50 1315.00

Volume 8680 9601 262 31

Open Interest 10783 9240 505 196

Source: Bursa Malaysia

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30 June 2010

Chart 5: US Dow Jones Industrial Average (DJIA) Daily

Chart 6: US Nasdaq Composite Daily

US Market Leads:

♦

US stocks plunged on Tuesday, sending the US benchmark DJIA down by as much as 326 pts before ending the day at 9,870.30 with 268 pts or 2.7% loss.

♦

Investors turned nervous and sold off shares after a big drop in consumer confidence and signs of a sharper slowdown in the global economy, following huge losses in key European and Asian markets overnight.

♦

The market opened very weak yesterday, but selling picked up after Consumer Confidence Index for Jun was reported. It fell to 52.9 versus 62.7 in May. The decline reflects worries about the labor market and the ongoing economic outlook. The street had expected it to fall to 62.

♦

Meanwhile, the US light sweet crude oil futures for August delivery fell further by US$2.31 to US$75.94 a barrel in Nymex.

Technical Interpretations: Dow Jones Industrial Average (DJIA)

♦

The US DJIA tumbled on Tuesday, after recording two consecutive “doji” candles, resembling a resumption of strong selling momentum on the technical perspective.

♦

The fall also confirmed the index losing the key 21-day SMA near 10,178. The loss of the key psychological level of 10,000 suggests that the chart has moved into a short-term bearish territory.

♦

Going forward, with the momentum indicators dipping towards the “oversold” region, the index is likely to retest the support region of 9,200 – 9,700 soon.

♦

In our view, more bearish signals could emerge as the DJIA moves lower to trigger the major “Head & Shoulders” formation upon losing 9,700.

Nasdaq Composite (Nasdaq)

♦

The Nasdaq Composite index plunged 85.47 pts or 3.85% to 2,135.18 yesterday, with a huge technical gap to below the 2,190 key support level.

♦

The swing effectively dragged the index into the short- to medium-term bearish chart outlook as it confirmed losing the 21-day SMA of 2,242.

♦

2,190 becomes its immediate-term resistance, while the 2,000 and 2,100 supports will be revisited soon, in our view. A comprehensive range of market research reports by award-winning economists and analysts are exclusively available for download from www.rhbinvest.com

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30 June 2010 Daily Technical Watch: Chart 7: IRCB Daily

Chart 8: IRCB Intraday

Integrated Rubber Corporation (2127) Likely to retreat towards the RM0.56 – RM0.70 region in the near term…

♦

The share price of IRCB turned bullish after breaking out from the RM0.83 resistance level in Jan 2010 and rolled out a powerful rally.

♦

It soared to a multi-year high of RM1.87, but immediately triggered a constant profit-taking leg.

♦

The profit-taking pressure pressed it to below the RM1.31 level, which eventually drifted to the region of RM0.97 in Mar 2010.

♦

After a swift rebound that hit the resistance at RM1.31 failed to attract follow-through support, the stock trended lower and breached below the RM0.97 level.

♦

It regained its footing only near the RM0.70 level in May, before recovering slowly along the 10-day SMA.

♦

However, after days of trying, the stock registered a bearish candle on the chart yesterday, as it closed at RM0.78 with a 4.5sen loss.

♦

Yesterday’s close was just below the 10-day SMA of RM0.79. Added with the retreat on the momentum indicators, the stock is poised to ease further and fall below the 40-day SMA of RM0.76 soon on follow-through selling momentum.

♦

Unless it can supprise with a technical rebound to above the RM0.83 immediate resistance level, it is likely to retreat towards the RM0.56 – RM0.70 support region in the near term.

Technical Readings:

♦

10-day SMA:

RM0.7905

♦

40-day SMA:

RM0.7604

♦

Support:

IS = RM0.70

S1 = RM0.56

♦

Resistance:

IR = RM0.83

R1 = RM0.97

R2 = RM1.31

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30 June 2010

IMPORTANT DISCLOSURES This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad (previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons may from time to time have an interest in the securities mentioned by this report. This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts any liability for any loss or damage arising out of the use of all or any part of this report. RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity securities or loans of any company that may be involved in this transaction. “Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors, officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports. This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel. The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues. Technical recommendation framework for stocks and sectors are as follows: Technical Recommendation: Trading Buy = Short-term positive opportunity spotted. It is an aggressive trading recommendation with a book to sellers’ price for short-term technical upside. Bargain Buy = Short-term positive but technical signals have yet to trigger a rally. Traders can park and queue for their desired entry level within a small range. Buy on Weakness = Short- to Medium-term positiveness anticipated, but technical readings are still negative. Traders can pick-up the stock for future rally. Sell on Strength = Short-term momentum still positive, Traders are advice to lock in profit base on current strength. Take Profit = Short-term target achieved. Traders are advice to exit before the technical readings turn bearish. Avoid = Risky situation in the short-term and high volatility expected on the share price. Traders’ best strategy is staying away until it stabilises. Technical Time Frame: Immediate-term = short time frame within a contra period. Short-term = moderate time frame within two to three contra periods. For tracking purposes, we refer to 10 trading days. Medium-term = medium time frame usually refers to two to three weeks period. For tracking purposes, we refer to 20 trading days. Technical recommendations are generally short-term in nature and may differ from RHBRI’s equity fundamental view and recommendation on the same company. RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. securities, subject to the duties of confidentiality, will be made available upon request.

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