Tuesday, April 07, 2020

My Selection of Stocks for Medium to Long-term Investment

I shared the following:

1) A list of sectors which are rated “overweight” by Kenanga, along with the top picks or preferred stocks in these sectors

2) A list of my preferred stocks covered by Kenanga, based on potential 1-year total return.

The 2 lists are aimed at investors with slightly different investment criteria. The first list would cater for investors who like to buy solid stocks in outperforming sectors. The second list would cater for investors who are looking to buy stocks with the highest return regardless of the sector the stocks are in.

You will see that some target prices are in red, which means that the stock target prices have been revised downward.

Good luck, and happy investing!

Monday, April 06, 2020

Market Outlook as at April 6, 2020 (Updated)

This afternoon, the Malaysian government announced support amounting to RM10 billion for the small & medium-sized enterprises, which would be badly hit by the Covid-19 outbreak. This is the second good news for the day.

The first good news was a smaller increase in total cases and total death for April 5- which could mark a temporary peak for Covid-19 cases & death. 

Chart 1: Daily increase in total cases and death from Covid-19

With the positive developments, our market may continue to recover. If the index can surpass the 1350-1353 level, we might attempt to climb back above the long-term uptrend line at 1400-1405. At this point, I doubt the index can climb above this resistance as the Covid-19 outbreak and its economic impact are just beginning to be felt. Based on these concerns, I think we should remain cautious in our investment plan.

Chart 2: FBMKLCI's daily chart as at April 6, 2020 (Source: Malaysiastock.biz)

Chart 3: FBMKLCI's monthly chart as at April 6, 2020 (Source: Malaysiastock.biz)

(UPDATE) Overnight, US markets rallied with DJIA rising 1628 points (or, 7.7%) to 22680 and Nasdaq rising 540 points (or, 7.3%) to 7913. The good point to note is that yesterday's market highs & closes for DJIA and Nasdaq were both higher than what were recorded on March 26. This is a sign of a tentative short-term uptrend move, where you have a higher "low" (or, trough) earlier and now you have a higher "high" (or, peak). The higher "low" was on April 1-3 as compared to previous low on March 18-23, while the higher "high" was made yesterday as compared to previous high on March 26. While this means that the rally may have legs room to go, the immediate resistance is just overhead at the high recorded on March 13. So, tonight will be an interesting night for US markets.

Chart 4: DJIA's daily chart as at April 6, 2020 (Source: Stockcharts.com)

Chart 5: Nasdaq's daily chart as at April 6, 2020 (Source: Stockcharts.com)

Thursday, March 26, 2020

Using Broker's Stock Rating Summary to Compile Your Stock Buy List

In the past few days, our market has rebounded substantially. Many investors are asking the perennial question: What can I buy?

Today, I like to share with you one of the ways that you can make full use of your broker's substantial resources to compile your own stock buy list. If you are not too savvy, you can work with your remisier to come up with this listing. I do this on a fortnightly basis for my clients when the market is relatively quiet but during the past few weeks, I have been updating my listing on a weekly basis. Go here for an example of Kenanga's Rating Summary dated 6 December 2019.

These are my steps to produce a listing of selected good stocks that have dropped substantially.
  1. Select all the stocks which meet your valuation parameters, be it PER or PB or DY.
  2. Compute the potential 1-year return for the stock by adding dividend yield (%) to Upside potential (%).
  3. Compare the closing price as per the Rating Summary (Mar 19) with prices 3-4 weeks ago (I chose Feb 27).
  4. For each sector, choose the top 1-2 losers.
  5. Remove those stocks that you don't like for whatever reason.

These are my 2-page listing (in 2 pages for easy referral) which I sent to my clients last weekend.

Table 1: My Selection of Kenanga's Rating Summary, page 1

Table 2: My Selection of Kenanga's Rating Summary, page 2

I have highlighted 4 columns to guide good stock selection- upside potential (blue), dividend yield (green), potential total return (pink) and percentage decline (yellow).

Stock ratings in Kenanga Research can be:

  • OP (Outperform)           Return of more than 10%
  • MP (Market-perform)    Return of between 5% and 10%
  • UP (Under-perform)       Return of less than 5%

As a remisier, I like to stay engaged with my clients during this challenging period. I'm always a cautiously optimistic person. I believe that a bear market is a good time to buy stocks. The problem is how to buy stocks at good prices when everyone around you is looking to sell off their stocks. In times like this, we have to remind ourselves that the exact opposite always happens in a bull market, when we would have a very difficult time selling because everyone else is so busy buying. So, my advice is to stay calm, stay engaged with the market and of course, stay at home when the Movement Control Order is enforced.

Good luck!

Wednesday, March 25, 2020

Market Outlook as at March 25, 2020

DJIA soared  2113 points or 11.4% to close at 19722 yesterday. The huge rebound happened after Fed's aggressive monetary easing as well as buying of bonds plus progress made in drafting a huge spending bill of USD 2 trillion to support American consumers and businesses from the fallout from Covid-19. 

Chart 1: DJIA's daily chart as at March 24, 2020 (Source: Stockcharts.com)

DJIA tested the horizontal line at 18000 before rebounding. Its immediate resistance will be the psychological resistance at 20000.

Chart 2: DJIA's weekly chart as at March 24, 2020 (Source: Stockcharts.com)

This morning, our FBMKLCI broke above the resistance from the narrow gap at 1320. As at 9:30 a.m., FBMKLCI was up 44 points to 1335. After this, the next resistance will be at the psychological level of 1400 and the gap at 1415.

Chart 3: FBMKLCI's daily chart as at March 24, 2020 (Source: Malaysiastock.biz)

Like the rallies in the US markets, our rally is extremely sharp due to the very steep fall which witnessed happened over the last 1-2 weeks. Nevertheless, we must be mindful that the worst of the Covid-19 pandemic has yet to pass. The next 2 weeks may see more cases reported in Europe and America. If this scenario were to pan out, the market rally will falter. You should consider taking profit for some investment as well as selling off some weak stocks in your portfolio. Good luck!

Tuesday, March 24, 2020

Malaysian Past Market Downturns Compared

I have studied our current market meltdown along with the market meltdowns in 1998 & 2008. My objectives were:
1) to identify the set-up for the start of the market uptrend in 1999 and 2009; and
2) to assess the extend of the current decline & the potential for a decent rebound.

I have compiled a composite chart showing the 3 bear markets - 1998, 2008 & today - side by side. These charts are weekly charts plotted on a semi-log scale, overlaid with 3 moving average lines (10, 20 & 40-week SMA lines) and 3 indicators (MACD, Stochastic RSI and DMI).

Chart: FBMKLCI's weekly chart for 1997-1999, 2007-2009 and 2018-2020

The set-up for both market uptrends in November 1998 (the numbers are in blue) and March 2009 (see the numbers in green) are:
    1. Index rose above both 10 & 20-week SMA lines
    2. MACD crossed above the MACD signal line
    3. Stochastic RSI was above 80 (or, in oversold territory)
    4. +DMI crossed above -DMI and continued to diverge
The failed market uptrend in June 1998 fell short in one area, namely after +DMI had crossed above -DMI, they did not diverge but instead became entangled and eventually reversed. This could be due to the failure of the index to go above the 40-week SMA line, which eventually reversed downward.

In this round of market meltdown, FBMKLCI has dropped too sharply that we are a long way from achieving a set-up that we saw in November 1998 or March 2009. However, it is possible that we may have a decent rebound, akin to what we saw in June 1998 when the index rallied to test the 40-week SMA line. I consider this to be the optimistic scenario for the market for next few days or weeks.

While we live day-to-day with negative news relating to Covid-19, we should take comfort that Asian societies seem to be more discipline and our stock markets and currencies are much lower to begin with. Thus, when situation improves, fund managers would find Asian equity to be a better investment proposition than the equity of other markets.

For now, let's adopt a cautious approach. If you choose to buy in the market, let's choose the blue chip stocks and accumulate slowly. Good luck!!

Friday, March 20, 2020

Market Outlook as at March 20, 2020

Finally, FBMKLCI has a decent rally. As at 2:55 p.m., FBMKLCI was up 66 points to 1284. At this moment, we should just regard this as a technical rebound! Nonetheless, it is still very good as it has surpassed the reaction high of 1278 recorded on March 17. It might continue to climb higher and test the low of 1325 recorded on March 13.

Table: Leading movers as at March 20, 2020_2:55 pm

Chart: FBMKLCI's 60-min intraday chart as at March 20, 22020_2.55 pm (Source: Malaysiastock.biz)

A market with occasional strong technical rebound will draw in investors who like to buy good blue chip stocks for long-term investment. This will help to cushion the sharp decline which we had seen for the past few days. Having said that, we may not have seen the bottom in this market. Be careful and buy slowly.

Tuesday, March 17, 2020

Market Outlook as at 17 March 2020

If you look at the weekly chart below, you will see the extreme drop in the market last few days. In my 26 years in the market, I have not seen anything quite like this. Don't be surprised that we might have a good & maybe even strong rebound once the market has confidence that we are doing something to fight Covid-19 pandemic.

Note: At the time of writing (9.25 am), the market is recovering a bit. Hopefully this can be at least a temporary bottom after a horrendous few days we had.

Chart: FBMKLCI's weekly chart as at Mar 16, 2020