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Tuesday, September 13, 2011

KLFIN’s “Outperforming” Stocks (OSK)

Maybank: Holding. Maybank has consistently “outperformed” the benchmark since the low of 2009. It has also moved against market in the past month as its relative strength line scales higher, hardly trading below the July high. However, note that RM9.00 resistance level is a very strong one as it has withstood multiple tests this year. It could be the making of a top, especially if the benchmark is going to make new lows. Speculative selling is plausible as the share price is not too far from the resistance, and a reentry can be made on a clear breakout above RM9.00, which should occur once the current market uncertainty clears. A close below last week’s low of RM8.62 should be the first sign of selling but any weakness has to be confirmed by the violation of the support level which now stands at RM8.20, which was a strong resistance back in 2007.

Public Bank: Testing relative strength high. Public Bank shows that it pays to hold an “outperforming” stock. The recent high was 35% higher than the high in 2008, compared to 5% for the benchmark. This illustrates how an “outperforming” stock can go on even higher after its correction ends. However, the stock is at an important juncture as it is testing the relative strength high for the second time since 2009. The failure to break this level could see it losing its relative strength and “underperform” the benchmark going forward. This also came after the share price failed to break above RM13.50 recently. In fact, selling resumed after the share price closed lower last week but given that it is not too far from this year’s weekly close low of RM12.80, a longer term trader may wish to wait till the support level is violated before exiting. Nonetheless, keep this stock in your radar as a break above RM13.50, together with a relative strength line new high, will see this stock accelerate higher.

RHB: Testing support. RHB is on a firm longer term uptrend, both in price and relative strength. Although the stock underperformed the index in 2007-2008, it pales in comparison with Maybank, which culminated with strength once its correction ended. This time around, there is a noticeable weakness as the stock’s relative strength line has been making lower high in the past 6 months. But the line has been holding its low as the stock’s fall in August was not as severe as the FBM KLCI’s. The support also coincides with a price low at the psychological RM8.00 level. As such, this could be an intermediate term bottom of the stock’s long-term uptrend and the break of both levels in terms of price and relative strength line, should see further price weakness.

AFG: Breaking higher. The stock has been unexciting, at least in relative strength terms, in the past 5 years. Its relative strength line moved sideways within a band over the period. However, things may change as the share price broke above the resistance in July, both in terms of price and relative strength in July. It also managed to hold above the support zone of RM3.30-RM3.20 on the subsequent retracement. The August higher low, compared with the weaker benchmark, improved further in relative strength. As such, we expect this trend to continue and an accumulation above RM3.30 is a sensible buy strategy. However, the continuation of trend is also contingent on overall market conditions, where a weak market pulls down stocks together with its fall, and it may take a bit longer before an uptrend resumes should the stock close below RM3.20. But watch out for this stock when the correction is over as it is likely to be the market leader.

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