KUALA LUMPUR: RHB Research Institute sees strong upside for property player MALTON BHD [] but it said investors should be aware of overbought signals.

It said on Friday, Sept 9 Malton's share price rallied from a low of 30 sen in Jul 2010 to a year-high of 71.5 sen in Nov 2010 before correcting to a low of 46.5 sen in March.

Although the stock staged a technical rebound to a high of 67.5 sen in May, it failed to retest its year-high of 71.5 sen and resumed its downtrend to a low of 39 sen on Aug 9.

Facing an oversold situation, the stock recovered to consolidate above the 46 sen (61.8% FR level) over the next few weeks.

On Sept 7, the stock registered a positive candlestick to close at 49.5 sen (from its open of 47.5 sen). While volume remained thin at 2.3m shares, the stock's price crossed above the 40-day SMA.

RHB Research said Thursday's'' surge in trading volume of 33.1 million shares pushed the stock's price to a day-high of 60 sen (from its open of 50.5 sen) before pulling back to close at 58.5 sen, registering a long-white candlestick.

Noticeably, the sharp increase of 10-day SMA (48.35 sen) saw it decrease its divergence below the 40-day SMA (49.03 sen) to indicate a possible change to the stock's medium-term outlook to positive (from negative previously).

The research house said this was further strengthened by the increasing divergence of the MACD line above the signal line (coupled with the likelihood of both lines crossing into the positive region), indicating an increasingly positive outlook in the short term.

Nevertheless, the sharp spike in Malton's share price on Thursday pushed the RSI (72.932 pts) and Stochastic into the overbought region.

'Overall, we expect Malton's share price to breakout above the resistance region of 60-62 sen and resume its uptrend towards the next resistance of 67 sen in the short term and 72 sen in the medium term.

'In the event of a breakout above the 72 sen resistance, we expect the stock's price to extend its uptrend towards the next target of 81.5 sen (23.6% FP level),' it said.

RHB Research said the stock may see a strong pullback in the immediate term given the overbought indication of the RSI and Stochastic.

It advised investors to buy towards the support region of 53.5-56 sen for a better bargain.

'Although, we expect good support at 53.5 sen, breaching this level would lead to its share price falling towards the 40-day SMA (RM0.4903), which would in turn offer medium-term investors a chance to further bargain buy.

'Investors should, however, take note that the breaching of the 40-day SMA would turn the immediate outlook negative. Hence, short-term investors should cut loss if the price breaches 53.5 sen while medium-term investors may choose to cut loss below the 40-day SMA.

'Nonetheless, we see a good risk to reward ratio for investors with a theoretical entry price of 55 sen given that the downside to the 40-day SMA is 6 sen while the upside to the resistance of 67 sen and 72 sen is 12 sen and 17 sen respectively,' it said.