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!

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!

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!!

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.

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

Market Outlook as at Mar 15, 2020

Despite the sharp rally in US stocks markets last Friday, global stock market will remain very choppy due to fear and uncertainty surrounding Covid-19 pandemic.

Last week, our FBMKLCI broke below the long-term uptrend line at 1420, and closed at 1345. This means that our long-term uptrend may have ended, and the market may enter into a bear market unless there is a quick recovery. See the monthly chart below.


Chart 1: FBMKLCI's monthly chart as at Mar 13, 2020 (Source: Malaysiastock.biz)

Looking at the daily chart, we can see bullish divergence in Stochastic RSI as compared to the index. However, this divergence will take a back seat as the market is driven by fear and forced selling.


Chart 2: FBMKLCI's daily chart as at Mar 13, 2020 (Source: Malaysiastock.biz)

For long-term investors, this is the market that you should take advantage of to invest. However, I will caution that the breakdown of the long-term uptrend line has just happened last week and it may be a long track downward until the bottom. Nonetheless, no one knows where the bottom is. You should calibrate your buying accordingly. As for traders, this will be a very volatile market and you should avoid trading unless you have the necessarily skill and temperament to weather the oncoming storm. Good luck.

Market Outlook as at March 10, 2020

Covid-19 has induced a market meltdown throughout the world. To add to the state of confusion & fear, the Saudi decided to bring on the collapse of crude oil prices over the weekend. The net result was a free fall in equity market worldwide. I have appended below a small samples of some of the important markets to watch, namely DJIA, Nikkei and Hang Seng. You can see that these indices are approaching important support zones, and if sanity were to prevail - and the fear & confusion subside - over the next few days, then we may have a baseline to work with. I don't expect a quick recovery from this base because we have to deal with the secondary impact from Covid-19 which may take a few months to show result. If you want to see the road ahead, look to China; They were the first to be hit and they are only now beginning to stage a tepid recovery from that epidemic.

Chart 1: DJIA's weekly chart as at Mar 9, 2020 (Source: Stockcharts.com)


Chart 2: Nikk 225's weekly chart as at Mar 9, 2020 (Source: Stockcharts.com)


Chart 3: HSi's weekly chart as at Mar 9, 2020 (Source: Stockcharts.com)

Meanwhile in Malaysia, we have an additional problem of political uncertainty. The good news is the cabinet announced yesterday was sensible and uncontroversial. Hopefully, this will be the recovery beginning of the return to the new normal for us.

The monthly chart for FBMKLCI below shows that we are very close to the long-term uptrend line, SS support at 1400-1425. If this uptrend line can hold, then this will be the base for our recovery from the carnage of the past few months. Good luck!


Chart 4: FBMKLCI's monthly chart as at Mar 9, 2020 (Source: Malaysiastock.biz)

Malaysian Politic: Crisis Ended with the Worst Possible Outcome

Politic is the art of the possible and the impossible. In May 2018, we achieved the impossible by bringing down a kleptocracy, led by Najib in a peaceful election - a rare feat among Third World nations.

Last Saturday, we jettisoned that government of the people, by the people and for the people for something completely opposite. The new government is led by Muhyiddin - one of the leaders that was sacked by Najib as his corrupted practices under 1MDB began to breakout. This time around, Muhyiddin upended the PH coalition government by forming a pact with numerous parties and individual MPs, including Najib's party, UMNO in order to secure a majority support in the Parliament. Muhyiddin's action proved that the politic of convenience still thumbs politic of principles in Malaysia.

Like many, I feel totally betrayed by the PH politicians, who have squandered the opportunity to give the nation and the people a reset after years of neglect and bad government. When all hopes are lost, and pessimism replaces optimism, the market sentiment will take a turn for the worse.

I expect the market to slide for the next few weeks or even months. Malaysian stock market will be in the wilderness in the medium-term until we have clarity that we are still a nation of law, and we will not return to the same old bad practices & policies of the past. If the GLC funds were to push up the market in the first few hours of trading - to give the market the resemblance of a vote of confidence - you should use that opportunity to reduce your position.

To my fellow Malaysians, do not be despair. The struggle for a better tomorrow for all Malaysians is not an easy feat. For our children's sake, we must continue on with this struggle until victory is ours.