Wednesday, May 07, 2014

Market Outlook as at May 7, 2014

Our market has witnessed rotational plays among the 2nd & 3rd liners for the past 1 year. Some of these stocks rose on better earning reports while many rose on news flow and much less. Their rise is well-reflected in the spectacular 70%-gain for FBMACE and no-less-impressive 50%-gain for FBMFLG & FBMSCAP. These outpaced FBMKLCI which only managed to gain of 15%.

Over the past 2 weeks, the 2nd & 3rd liners tumbled sharply. We can see that FBMACE is now testing its uptrend line while FBMFLG, FBMSCAP & FBMKLCI are in an uptrend line. This proves a point: The higher you go, the faster you will fall. If FBMACE can stay above its uptrend line support at 6400, then the market can take comfort in knowing that this is simply a small correction. A breakdown of the FBMACE uptrend line could signal further weakness ahead- most likely amongst the 2nd and 3rd liners.  Today, FBMACE rebounded 50 points to 6545. That's a positive sign, albeit a small rebound. It is still too early to jump whole-heartedly into the market. Let's wait & see how the market will perform over the next few days.

Chart 1: FBMACE's daily chart as at May 6, 2014 (Source: Chartnexus)

Chart 2: FBMSCAP's daily chart as at May 6, 2014 (Source: Chartnexus)

Chart 3: FBMFLG's daily chart as at May 6, 2014 (Source: Chartnexus)

Chart 4: FBMKLCI's daily chart as at May 6, 2014 (Source: Chartnexus) 


konchy said...

Hi Alex,

I was looking for some high dividend counters. What do you think of BP Plastics?

It has very little volume in its charts. Is that a risk?

Alex Lu said...

Hi konchy

BP Plastics is a quiet stock. Whether it is riskier or not depends on your objective. If you are trading, then volume is very important. Thus, a stock in play will first exhibit big volume to induce the players to get in.

However, if you are investing, volume is less critical until the point of exit. With some planning, you can still exit if the exit is carrying out stealthily or taking advantage of sudden volume increase.

BPPlas may have a bullish breakout at RM0.72-0.74. Its first target price will be RM0.90.

At RM0.735, the stock is trading at a PER of 13x or at a PB of 0.9x. For a smallcap stock, these multiples indicate full valuation. However in the current environment, where smallcap stocks are the IN stocks, BPPas does not look excessively expensive and as such, is worth a punt.

Do exercise careful discretion in all trading...