This article first appeared in The Edge Financial Daily, on January 29, 2016.

US equity markets tumbled on Wednesday as investors sold stocks after the US Federal Reserve left the door open for further rate hikes in the later part of the year at its Federal Open Market Committee meeting on Tuesday and Wednesday. The US central bank acknowledged dimming expectations of global growth that have resulted in sharp stock market sell-offs in January.

Apple Inc fell after forecasting a sales decline for the first time in a decade and Boeing tumbled after stating that profit this year would miss analysts’ estimates. Despite crude oil reversing upwards, the S&P 500 Index tumbled 20.68 points to 1,882.95, while the Dow Jones Industrial Average (Dow) plunged 222.77 points to end at 15,944.46.

The FBM KLCI moved in a narrow range of 22.58 points for the week with lower volumes of 1.56 billion to 1.82 billion shares traded. The index closed at 1,634.53 yesterday, up 2.99 points from the previous day as blue-chip stocks like British American Tobacco (M) Bhd, Kuala Lumpur Kepong Bhd, Petronas Dagangan Bhd, PPB Group Bhd and Sime Darby Bhd caused the index to rise on local buying activities. The ringgit firmed against the US dollar at 4.2055 as Brent crude gained ground on short covering to US$32.10 (RM135.14) per barrel.

The index rose on a rally from the low of 801.27 (October 2008) to its all-time high 1,896.23 (July 2014), and this represents an extended Elliott Wave “Flat” rebound in a “Pseudo-Bull” rise completed. The next few months’ index price movements since July 2014 comprised key swings of 1,671.82 (low), 1,867.53 (high), 1,503.68 (low) and 1,727.41 (high).

The index’s decline from 1,867.53 (April 2015) to 1,503.68 (August 2015) is in a perfect 1.62-ratio of the initial down-thrust from the high of 1,896.23 (July 2014) to the 1,671.82 low (December 2014). The subsequent rebound from the 1,503.68 low stalled at the 1,727.41 high, which also saw a perfect upward 62% retracement of the 1,867.53 to 1,503.68 move.

The index’s next two minor swings comprised a minor low of 1,622.84, which then rebounded and stalled at the 1,706.25 minor high on Dec 30, 2015. Its persistent weaker price action in January 2016 is in tandem with the softer tone of global markets and the index broke the 1,622.84 support to a new recent low of 1,600.92 last Thursday.

The index’s daily signals are mixed, with its commodity channel index (CCI), directional movement index (DMI) and Oscillator indicators showing negative signals, while the moving average convergence/divergence (MACD) and Stochastic are positive. As such, the index’s support levels are seen at the 1,595, 1,608 and 1,630 levels, while heavy liquidation in the resistance areas of 1,634, 1,675 and 1,727 will cap any index rebound.

The FBM KLCI’s 18-day and 40-day simple moving averages (SMAs) depict an emerging downtrend for its short-term daily chart. The index’s price bars are below the 50-day and 200-day daily SMAs, and this depicts a downward phase for the FBM KLCI in the medium to longer term too. We also recently sighted a “dead cross” of the 50-day and 200-day SMAs for the index’s weekly chart. This will not augur well for the index in the longer term and for 2016. Our downside targets for the index remain at 1,580, 1,549 and 1,490.

Due to the poorer tone of the FBM KLCI, we are recommending a chart “sell” on JCY International Bhd. A check on the Bloomberg consensus reveals that two research houses cover this stock, with a “buy” call and a “hold” call. 

JCY is in the computer hardware and storage business. The company manufactures hard disk mechanical components, baseplates, top cover assemblies and anti-discs. Its current price-earnings and price-to-book ratios stand at low levels of seven times and 1.13 times respectively. Its return on equity stood at 17.3% and the company’s current indicative dividend yield is at 9.31%. There is no significant news on the stock recently.

JCY’s chart trend in the daily time frame is very firmly down. Its share price made an obvious plunge since its major daily wave-five high of 89 sen in December 2015. Since that 89 sen high, JCY fell to its recent January 2016 low of 68.5 sen.

As prices broke above its recent key critical support levels of 80 sen and 84 sen, look to sell JCY on any rallies to its resistance areas as the moving averages depict a very firm short- to medium-term downtrend for this stock. The daily indicators (like the CCI, DMI, Oscillator and MACD) have issued clear sell signals, and now show firm and obvious indications of JCY’s eventual plunge towards lower levels.

It would attract firm selling activities at the resistance levels of 69 sen, 80 sen and 84 sen. We expect JCY to witness weak buying activities at its support levels of 61 sen, 67 sen and 68.5 sen. Its downside targets are located at 65 sen and 59 sen.

Lee Cheng Hooi is the regional chartist at Maybank Kim Eng. The views expressed in the article are the opinions of the writer and should not be construed as investment advice. Please exercise your own judgement or seek professional advice for your investment decisions. Technical report appears every Wednesday and Friday.