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Friday, May 13, 2016

Market Outlook as at May 13, 2016

The FBMKLCI dropped 24 points to 1625 as at 11:00am. The weekly chart shows the index has broken below its tentative uptrend line, SS. The MACD has crossed below the MACD signal line as well as entering the negative territory while -DMI has crossed above the +DMI (indicating downtrend) and ADX is poised to go above the 20-mark (when trend momentum picks up). With these negative readings from price action and indicators, FBMKLCI looks set to test the 1600 psychological support soon.


Chart 1: FBMKLCI's weekly chart as at May 13, 2016_11.00am (Source: Shareinvestor.com)

If we use Fibonacci ratios to analyze and project the index levels where we expect retracements to end, we can see that the index found support at the 23.6% level in early 2015. After that retracement level failed, FBMKLCI dropped to the next retracement level - the 38.2% level - where it remains for the past 9 months. The bearish reading from the weekly chart above means that the index is now breaking down below the 38.2% level. The next support will be a non-Fibonacci ratio of 50% level of retracement at 1500-1550. Below that, we have the Fibonacci ratio of 61.8% retracement at 1350-1400.


Chart 2: FBMKLCI's monthly chart as at May 10, 2016 13, 2016_11.00am (Source: Shareinvestor.com)

The sharp drop in the index this morning is likely to be related to new developments in the 1MDB saga (here and here); and another interest payment default by 1MDB (here). Like the political mess in Brazil, the endgame for 1MDB will play out for sometime. This will only serve to keep foreign funds away from our market (here) as well as dragging down the MYR and slowing down the economy.

In this bearish market, investors must exercise careful discretion in their investment & trading.

3 comments:

InvestSmart said...

Mr Alex, what is your view on RGB International Berhad?

Alex Lu said...

Hi InvestSmart

RGB is profitable company involved in the design, production, sales & rental of gaming machines. It was also involved in the gaming business but that venture was not successful. After terminating its loss-making business, RGB's financial performance improved.

At RM0.16, RGB is now trading at a trailing PER of 10x (to its last 4 quarters' EPS of 1.64 sen). It pays a decent dividend of 0.5 sen last year which translates to a DY of 3.1%.

Chartwise, RGB is in a gradual uptrend line, with support at RM0.13. If the market selldown in August 2015 is "ignored" or set aside, then it's possible to draw an intermediate uptrend line with support at RM0.15. The stock is trading at RM0.15-0.16 for the past 2 months. I believe that this is a good support. Unless its profits dropped in QE31/3//2016, this stock should rebound from here. If the result is weaker than QE31/12/2015, then we may see the share price dropping to RM0.13.

With this, I believe it is relatively safe to get into the stock now.

InvestSmart said...

Mr Alex , thank you for your advise.