Weekly Update

Dow (27,931)

After a strong surge on Tuesday, Dow started to move side way to lower in the next 3 following days indicating a possible short term correction. There are 3 possible degree of correction.

First possibility is a sub-wave iv correction.

Second possibility is a higher degree wave (vi) correction, assuming major wave 1 is going to have 9 waves.

The third possibility is a 10% major wave 2 pullback.

FBMKLCI (1,564)

KLCI failed to move higher last week. In fact the market went into panic selling on Wednesday triggered by the heavy selling of glove stocks after the announcement by Russian President Vladimir Putin the approval for use of a coronavirus vaccine.

With Wednesday's low creating a possible mini wave 3, KLCI appeared to form a bigger wave (ii) with an A-B-C formation. Last Friday's 11.8 points drop could be the first candlestick of mini wave 5 of C of (ii).

AT Systematization Bhd (Rm0.09)

AT's proposed new venture into glove manufacturing, has a powerful surge on Tuesday to an intra-day high of 17 sens with fantastic volume of 1.09 billion shares. Its stock price was also affected by President Putin's announcement. Its Tuesday surge turned out to be a wave B instead of an anticipated major wave 3's run-up.

On Balance Volume (OBV) of Focus (Rm1.88) and Fintec (Rm0.115)

Focus is a fantastic stock in term of its share price appreciation. From its 2016's low of 2.5 sens, it managed to move to Rm1.98 last Thursday, a 7,920% gain over 4 years. 

From July 15 to August 13, AT moved from Rm1.22 to Rm1.98 for a 62% gain but not with high volume. Average volume during this period was about 3 to 4 million a day. I suspect Focus has already been cornered, there is no much free floating shares in the market.

Looking at the OBV pattern, it is possible that the stock accumulation was started as early as 2011 when OBV was at -ve 300 million. 8 years later by 2019 when share price dropped to 9.5 sens before it started to run, it OBV has reach 1.7 billion. Plus the -ve 300 million, the net OBV was 2 billion. AT's total number of shares is 2.044 billion.

Fintec is holding 25.3% or 517 million Focus share worth Rm970 million at Friday closing price of Rm1.88. Fintec has a total of 1.356 billion share and another 664 million Fintec-PA that can be converted into 332 million Fintec share. After conversion, Fintec will have 1.688 billion shares. 

Going through the OBV of Fintec, there was no sign of stock accumulation until March 2020 when Fintec reached its low of 2.5 sen. Within 4 months by early August, OBV has reached 2 billion, very fast indeed when compared its 4 months to Focus's 8 years of accumulation to reach 1.7 billion.

My main question is whether Fintec has been cornered by now?

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AT Systematization Bhd (Rm0.12)

AT gained 2 sens or 20% to 12 sens on Monday with very high volume of 612 million. 

AT at this moment is on its major wave 3. Even though it has not yet moved higher than its June's high of 16 sens, but its OBV has already broken out of its previous high. An OBV breakout indicates strong accumulation and is often followed by a price breakout.

After the market closed, New Straits Times published an article on 'AT diversifies into glove manufacturing', click the headline for the article.

In fact on July 1, AT has informed Bursa Malaysia Malaysia of its proposal to acquire the entire equity interest in Pear Glove (Malaysia) Sdn Bhd. The acquisition is expected to be completed before end of September 2020.

Gold (USD2,036.15/oz)

Since my last posting on gold one month ago on July 9, when gold price was at USD1,806/oz, gold price has gained another 15% to an intra-day new record high of USD2,078/oz on last Friday before closing at USD2,036/oz.

At this moment gold is about to complete its wave (iii). If the next pullback is around 10% for its wave (iv) formation, gold will continue to move higher to form the wave (v) of its major wave 3.

But if the coming correction is more 10%, I wouldn't be surprised that gold is heading for an 'expanding triangle A-B-C' formation for its mega wave (4) as shown below. For this scenario, gold price can go to as low as USD1,000/oz before going up again for its mega wave (5). Wave C of (4) may take about 5 years to complete.

Momentum-driven market due to excessive liquidity

Following a massive sell-off in March as the Covid-19 pandemic swept across the whole world, global markets have been surging despite disastrous economic consequences. It appeared to me that markets are purely driven by excessive liquidity, speculation and the momentum created by some situational sectors and stocks. At times it appeared a little bubblish. 

FBMKLCI (1,578)

Bursa has a broad-based retreat on Friday. KLCI dropped about 10 points with record volume of 27 billion. Losers out-numbered gainers by 794 to 435.

Based on its long-term chart, KLCI has been forming its mega wave (7) since setting its low of 1,219 in March 2020.

From its 19 March's low of 1,219 KLCI has gained about 30%. At this moment KLCI is forming its sub-wave iii of (iii) of its mega wave (7).

Dow (27,433)

Dow managed to move above and stay above 27,000 in the last few trading days to further enhance its bullish scenario. Dow is at its sub-wave iii of wave (v) in its mega wave (3) formation.

EG Industries Bhd (Rm0.615)

EG encountered heavy profit taking on Friday. It dropped 7.5 sens or 10.8% to Rm0.615. Based on candlestick, EG was on its wave (iii). If EG continues to move lower next week, then its last Tuesday high of Rm0.83 marked the end of the mini wave 5 of its wave (iii). EG is likely to drop to Rm0.52 to complete its wave (iv).

But if EG can move higher next week, then the Friday sharp drop to 61.5 sens is the mini wave 6, wave (iii) will have 9 mini waves under this condition. Wave (iii) is likely to end around Rm1.20 or 270% (1.618x167%=270%).

EG's Monday movement is crucial to confirm whether its wave (iii) has already ended Rm0.83 or it will end much higher at Rm1.20. 

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Fintec Global Bhd (Rm0.13)

Fintec is a Malaysia-based biotechnology, technology incubation and portfolio investment holding company. It is one of my favorite stock and I have mentioned this stock several time before.

Fintec is the second most active stock on Wednesday with 622 million share traded, the volume changed hand represent 46% of its total number of paid up share of 1,339 million. It gained 3 sens or 30% to close at 13 sens.

The most active stock is Vsolar with 689 million share traded. Fintac is holding 14.32%  of Vsolar.

Fintec has invested in many listed Malaysian companies that include TNB(0.01%), Komark(19.82%), Seacera(12.52%), Focus (25.02%), Vsolar(14.32%), AT(S)(28.29%), Netx(7.56%), DCB(7.37%) and Mlabs(11.2%). Its holding in these companies at today's closing price is worth Rm964 million or Rm0.72 per Fintec shares.

Fintec most valuable investment is its 25.02% holding in Focus. At Focus current price of Rm1.68, this stock has appreciated in price by 1200% in the last two years. During the same period Fintec's price has appreciated by only 85.7%.

The wave count for Fintec is as shown below. It is currently forming its sub-wave v that is likely to end either around Rm0.22 or Rm0.275 (my estimation).

For its last quarter ending 31/3/2020, Fintec EPS is 8.29 sens mainly from the fair value gained for its investment holdings. Net assets is Rm0.51. For the second quarter ending 30/6/2020, its estimated EPS is around 10 sens mainly from fair value gain and with net assets at Rm0.61 per share.

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EG Industries Bhd (Rm0.59)

EG gained 17 sens or +40% on Monday with a fantastic volume of 102 million, which represents close to 40% of its total number of share.

On chart EG is currently forming its wave (iii). If this wave (iii) can move up by 150%, same as that for wave (i), it can reach  Rm0.85. Very often wave (iii) is the longest wave among the five. Using fibonacci ratio of 1.618x150%=243%, wave (iii) may be able to reach Rm1.16.

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New bull supported by excessive liquidity?

The fundamentally impossible but technically possible mega wave (3) option that I have been keeping at the back of my mind seemed to be the most likely option now. From close to near zero probability in March, I even find it radiculous to mention about this possible wave count at that time, its probability slowly increase with the injection of more money by every nations.

The US has its unlimited QE programme (unlimited money printing). European Union latest 750 billion euro stimulus plan came out last week. In May the Japanese Government approved a fresh 31.9 trillion yen budget to fund the proposed 117 trillion yen economic stimulus programme. The Chinese fiscal stimulus package is worth 3.6 trillion yuen (US$506 billion). With so much money flowing around, where can they go? They cannot be left idle in the banking system.

Dow was having its sub-wave ii correction in the last few days. By next week if Dow can move above the 27,005 level, I can safely forget about the super wave VIII correction that I have been mentioning all this while since the March's bottom of 18,213.

Dow took 11 years from March 2009's low of 6,469 to February 2020's high of 29,568 to complete its mega wave (1) with a gain of 357%. Since, in general, wave 3 cannot be shorter than wave 1, technically the mega wave (3) needs to go up by at least 357% from its mega wave (2)'s low of 18,213 level within the next 10 to 12 years. A 357% gain will theoretically put mega wave (3) to at least 65,000 level !!!

Back to the Dow current situation, it closed Friday session gaining 114 points to 26,428. Until Dow is able to move above the 27,005 level, another about 600 points to go, or 2.3% to go, I still cannot knock out the super wave VIII option on paper.

However as early as mid-May 2020, a famous Malaysian finance blogger, Salvador Dali, in his article 'The Market's Disconnect to the Real Economy and the Glove Factor' (click for the full article) published on June 6 in his Malaysia-Finance Blog, he mentioned that he turned bullish on 18 May because of reasons mentioned in his article.

Basically he compared the Covid-19 downturn to that of the '1930's Great Depression' and the '1998 Asian Financial Crisis' economic collapse due to bubblelicious financial extravagance. The current pandemic struck hard and fast with escalating death figure that triggered 'social distancing,' 'lock down', and near zero physical social activities and business activities (except on-line business). With the amount of money injecting into the market through various stimulus packages, with fund managers holding US$591 billion waiting at the sideline, with dismal interest rate, it appeared possible that the bull is ready to run until someday we have reached the stage of 'irrational exuberance' as mentioned by Alan Greenspan during the dot.com bubble in the late 1990's where the Nasdaq Composite fell by 78%.

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