Bursa Malaysia Technical Analysis & Stock Trading: May 2009

Wednesday, May 20, 2009

To buy or to take profit after a technical correction?

A retreat of stock price after a rally is normal, because stock price can not go up forever as buying interests will not increase forever. Therefore, it is only normal to have a retreat as the profit taking take place, thus a technical correction. Generally, there are two types of technical corrections, one of them is a healthy technical correction, the other one is a correction which will end the uptrend.

Characteristics of a Healthy Technical Correction:
1. Stock price to move sideways or low down side fluctuation.
If the stock price is moving sideways, those who just bought the shares are not suffering any huge losses, thus it will not hurt the market sentiment. Meanwhile, for those who are still waiting on the sidelines, they will slowly accept the stock price if the stock price stop falling further, therefore, as these new investors are buying, there is a better chance for the stock price to form a higher-low, thus a continuation of an uptrend.

2. Lower volume during a technical correction.
Every volume represent 1 buyer and 1 seller. If volume is low during a technical correction, it means that sellers are not selling abruptly, thus no panic selling. In other words, not many buyers are able to buy their shares too, and therefore, there is a good chance for the stock price to resume its uptrend after a low-volume technical correction.

3. Price supported by dynamic support.
Professional investors will have a trading plan using trailing stops method, for example using 14, 21, 31 EMA as dynamic support. Therefore, if price should rebound from the 14, 21, 31 EMA or other forms of dynamic supports, it means that the uptrend remains intact, thus a healthy technical correction. Generally, trend traders or investors are likely to top up their positions when stock price rebound from its dynamic support.

4. Stochastic remain above 70% level.
Other than price movement and volume analysis, analysts are using Stochastic as a reference too. Generally, during a healthy technical correction, the Stochastic should not fall below 70% level. However, in some cases, the Stochastic breaks below the 70% level but returned to above 70% level within the next two days. This is still acceptable for the Stochastic can be over-sensitive sometimes. It also means that the short term price movement has not turned bearish despite a technical correction. Therefore, when the Stochastic return to above 70% level, it is a signal suggesting the short term bullish biased movement is resuming.

5. Overall market sentiment and external factors.
Most of the time, individual stock movement is pretty much moving in tandem with the broad market such as our KLCI and regional markets. If after a technical correction, with the broad markets still staying in uptrend, there is a better chance for the stock price to continue its uptrend.

Chart 1: Lionind [4235] from 20/02/2009 to 24/04/2009.

Description:
A: After rising for around 2 weeks, the Stochastic reached 100%, thus suggesting a short term over-bought signal.
B: Price of Lionind having a technical correction, but in a low fluctuation manner (-5.3%).
C: Volume was substantially lower during the technical correction.
D: Price of Lionind precisely rebounded from the dynamic support, forming a higher-low, thus a signal to top-up positions or buy signal.
E: Stochastic broke below 70% level, but returned to above 70% level, suggesting a resume of the uptrend.

Technical Correction which ends the uptrend:
1. Sharp falling of stock price or forming an Inverted V shape pattern.
If the stock price should retreat sharply, many investor who are still holding their positions will suffer sharp losses, thus dampen the market sentiment. Meanwhile, the sharp fall of the stock price will also dampen the confident of those investors who are waiting on the sidelines, and without fresh buying interests, chances for the stock price to resume its uptrend is slim.

2. Huge volume during a price falling.
When price is falling with huge volume, it means that a lot of sellers are selling their shares at a lower price. Although more buyers are buying at lower price, each price transacted is lower than the previous one, thus the selling pressure is stronger than buying interests. (Study Chart 2).

3. Price breaks below dynamic support.
If price should break below the dynamic support (Exponential Moving Average or Bollinger Middle Band) after its technical correction, it means that the uptrend is likely to end, thus investors are funds maybe taking profit, therefore, chances for the price to resume its uptrend is slim. (Study Chart 3).

4. Stochastic breaks below 30%.
During a healthy technical correction, the Stochastic should stay above 70% level. If the Stochastic should break below 70% level but failed to return to above 70% level, and then breaking below 50% and 30% level, it would be a signal suggesting a short term price movement is turning weak, thus an end to the uptrend and beginning of a short term bearish movement signal. (Study Chart 3)

5. Broad markets turn weak.
If the broad markets are turning weaker as the individual stock price is having a technical correction, chances for the stock price to resume its uptrend is also reduced.

(Chart 2) Resort [4715], from 29/09/2008 to 26/12/2009.

Description:
As indicated by A, when price retreat, volume increased substantially (as indicated by B), suggesting a strong selling pressure, the stock price movement was mostly lower.

(Chart 3) Kinstel [5060], from 05/03/2008 to 09/07/2008.

Description:
A: Stock price retreated, technical correction, but managed to rebound from the dynamic support, continued its uptrend.
B: Technical correction again, but this time, breaking below the dynamic support, suggesting an end to the uptrend, thus a signal for profit taking, or cutting losses.
C: Stochastic entered below 30% level, after breaking below 70% level, entering a short term bearish movement.

As shown on chart 3, although volume did not increase substantially during a technical correction, price has broken below the dynamic support. It is important to note that during a down trend or a price fall, it does not need to have high volume to confirm the bearish signal. Generally, if price should continue falling with low volume, it means that the buying interest is still low. Therefore, if price should break below the dynamic support, with high or low volume, investors should carefully consider to cut-loss or to take profit.

Stocks currently having a technical correction:

Stock	Code	Characteristic of the Technical Correction
Stock	Code	Downside Fluctuation	Volume	Dynamic Support	Stochastic
Lioncor	3581	-12.30%	Relatively Lower	Supported	Slightly below 70%
Resort	4715	-.9.40%	Relatively Higher	Supported	Below 70%
Proton	5304	-12.80%	Relatively Higher	Supported	Below 70%
TA	4898	-7.10%	Relatively Higher	Supported	Slightly below 70%
KNM	7164	-10.40%	Relatively Higher	Supported	Below 70%

Most of the time, investors are not fully invested when stock price is rising in an uptrend. Therefore, investors are looking for a second entry during a technical correction. However, it is very risky to try to buy during a technical correction, and it is usually not suitable for conservative type of investors. Even aggressive investors would plan out a training plan before they speculate, just in case the stock price should break below the uptrend line or the dynamic support level. Therefore, the safer way is to buy when price rebound from the uptrend after its technical correction.

Conclusion:
A healthy uptrend must have healthy corrections, or else it is impossible for the price to stay on in its uptrend, unless it is being controlled. Understanding the characteristics of a healthy technical correction is very important for a skillful investor will be informed if he or she could identify a healthy technical correction from a correction that ends the uptrend.

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Short term over-bought.

Since the rebound on the 18th of March, 2009, the KLCI has gained 130 points or 15%, during this period, many individual stock price has gone up, and many of them are in over-bought condition; however, is this a time to take profit or should we hold on to our position? Let us study some aspect about short term over-bought.

Most of the time, short term bullishness and short term over-heating can be confusing, and inexperienced investors would sell their positions too early and as a result, missing the big trend.

Short term indicator: Stochastic.

Stochastic is an important short term indicator for it is sensitive to detect price swing within a short time frame. Therefore, to determine the short term movement of a stock price, understanding the Stochastic is a must for serious investors. Generally, when the Stochastic should start rising and break above 30% level, it is a signal suggesting that the short term movement of a stock price is beginning to improve. If the Stochastic should continue to rise and break above 70% level, it would be a signal suggesting a short term bullish movement of the stock price. Provided that the Stochastic is still above 70% level, the short term bullish movement is expected to continue. If the Stochastic should break above 90% level, it is a signal suggesting the stock price is getting over-bought, thus some profit taking activities might take place. Some times, the Stochastic might hit 100%, which is a signal suggesting an extreme over-bought signal, thus a higher chance of a technical correction in the near term.

Since the Stochastic is a short term signal, it reflects the short term movement of the stock price. For example, when the Stochastic hits 100%, it suggests a technical correction might take place, and, some times, if the technical correction takes place but only for a short movement, (1 or 2 days) with the Stochastic falling but still above the 70% level, this suggests that the short term movement of the stock price is still bullish. In other words, short term over-bought is actually a sign, a characteristic of a bullish trend.

From a technical point of view, the best technical correction would be a low-fluctuated sideways movement. This is because when stock price is moving sideways, investors will be suffer huge losses, thus the selling pressure is generally mild. With the Stochastic still above 70% level after the technical correction, then chances for the uptrend to resume is usually higher.

(Chart 1) Lionind [4235] from 5/3/08 to 10/6/08.

Indication:	Description:
A	The Stochastic break above 30% level, stock price begin rising. After rising for 6 days, (gaining RM0.44 or 31.4%). When the Stochastic break above 90%, it is a signal suggesting a short term over-bought condition, thus a risk of a technical correction. Later, stock price of Lionind consolidated but the Stochastic remained above the 70% level, therefore, the short term movement is still bullish biased, and coupled with the support of the 14, 21, 31 EMA (as trailing stop level), the uptrend remains intact.
B	After a consolidation, price of Lionind rallied again, gaining RM0.59 of 32.6%. This time, the Stochastic is signaling an over-bought condition again; then, the price of Lionind retreated but still supported by the 14, 21, 31 EMA dynamic support, therefore, the uptrend is not violated. Generally, in this case, investors could consider to take profit of 1/3 of their positions.
C	The Stochastic hit 100%, but the stock price did not retreat, but continue rising instead. This is a classic example of very bullish movement, as more new buying interests flow in, suggesting the market was indeed very robust. However, despite the strong bullish movement, adding up or buying during a short term over-bought condition is still risky.
D	The Stochastic breaks below 70% level, suggesting an end to the short term bullish movement, or the uptrend might come to an end. Meanwhile, the stock price also started falling, but still supported by the 14, 21, 31 EMA. Despite the support at 14, 21, 31 EMA, price of Lionind consolidated again, but the Stochastic has already broken below 70%, suggesting an end to the short term bullish movement, and therefore, a signal to take profit.

Short term over-bought is not an end of the uptrend:

As shown on chart 1, investors should incorporate the use of Stochastic over-bought signal with the uptrend, therefore, this will avoid over-reacting by selling your position too early, and as a result, missing the big up trend. During a strong uptrend, short term over-bought is, in fact, its characteristic, and price may correct or consolidation afterwards, and some times, price may rally instead.

Most of the time, investors who sold their position during a over-bought condition and later found out that price did not retreat but only move sideways, while the Stochastic is still above 70%. If price should continue its uptrend and rally again, often the investors who has sold their position find it hard to buy again, for they will have to buy again with a price level higher than the price they took profit, as a result, they will miss the second chance of the uptrend.

Topping up during short term -over-bought?

Although short term over-bought signal might not be a time to take profit, it is definitely not a good time to enter or top up positions, because the chance of a technical correction is still high. During some extreme circumstances, like a sudden spike of price, or when the stock price is too far above the 14, 21, 31 EMA of any other trailing stop reference, investors who wish to secure some profit or reduce their trading risk could consider selling part of their position, usually 1/3 of them, while waiting for a technical correction, and they could buy back again when price rebound and resume the uptrend.

Some stock that are currently over-bought:

Short Name	Code	Condition:
Lioncor	3581	Mid term uptrend, short term over-bought (Over heated)
Tenaga	5347	Breakout of Triangle, short term uptrend. (Over heated)
Ytlpowr	6742	Mid term uptrend, short term over-bought (Over heated)
Proton	5304	Mid term uptrend, short term over-bought (Over heated)
Liondiv	2887	Mid term uptrend, short term over-bought (Over heated)
Supermx	7106	Mid term uptrend, short term over-bought (Over heated)
Suncity	6289	Mid term uptrend, short term over-bought (Over heated)
Gtronic	7022	Short term uptrend (Over heated)
Gplus	2968	Technical rebound, short term over-bought.

Table 1: Some stocks currently at over-bought condition with Stochastic above 90%. However, these stocks are having their Stochastic above 70%, which is a short term bullish signal. If the Stochastic should break below 70% level, it may be a signal for investors to consider to take profit.

Chart 2: KLCI chart from 24/12/2008 to 24/04/2009

Chart 2 is another example of Stochastic breaking above 30% level, followed by the Stochastic breaking above 70% level (indicated by arrow B), entering the short term bullish region. Although the Stochastic has broken above 90% level many times, the uptrend remains intact due to strong buying interest. Provided that the Stochastic is still above 70% level, the uptrend is expected to continue.

Conclusion:
Continuous short term over-bought is a typical characteristic of a bullish market or a strong uptrend. When an individual stock is over-bought, investors must also study the broad market condition, and the uptrend of that particular stock, before over-reacting by selling their position too quickly. As long as the uptrend remains intact, while the broad market is still bullish, investors should remain calm while study the consolidation of the individual stock.

Defining Bull and Bear market.

Ever since the rebound on the 18th of March, 2009, the KLCI had gained a total of 105 points or 13%, breaking above the 900 psychological level. Many investors will ask "has the bull returned, and how should I confirm it?" In technical analysis, we have a way to identify a bull or bear market.

Using 200-day Moving average (MA) is a general standard of fund managers to identify bull or bear market, and this has eventually, became a standard indicator for many investors. Since it is an indicator viewed my many investors, it will form a "mass consensus effect", and therefore, it is an important indicator not to be ignored.

Generally, if a major index of a country (for example, the KLCI) breaks above the 200-day MA with substantial volume, then it is likely to enter a bull market. On the other hand, if the index should break below 200-day MA, it is likely to enter a bear market.

(Chart 1): KLCI chart from April 2006 to April 2009, with 200-day MA defining Bull or Bear market.

As shown on chart 1, the KLCI broke below the 200-day MA in March 2008, and entered a bear market (losing over 40%); until now, the KLCI still has not broken above the 200-day MA successfully. This suggests that the KLCI is still in bear market now. Nevertheless, the recently strong rebound of the KLCI has lifted the KLCI very closed to the 200-day MA, thus testing the bull market. If the KLCI should break above 200-day MA with substantial volume, it is likely that the KLCI would break away from the bear run and enter a bull market.

The Psychology behind 200-day Moving Average:

The formation of the 200-day MA is very simple, it takes up the closing price of 200 trading days, and divided them into 200. If we should round up 200 trading days, it is almost equaled to 1 year. Therefore, if a 200-day MA is moving lower, with the stock price staying below it, we could sum up that the long term trend is still bearish because the average movement of the stock price over a year is basically still falling, and therefore, a disciplined investor should not go against the trend, as the risk of buying during a downtrend is still higher. In contrary, if the stock price is rising while above the 200-day MA, it means that the stock price average for the year is generally rising, thus an uptrend, and therefore, buying investing during an uptrend is generally safer.

Examples:

(Chart 2) Genting [3182], from April 9, 2008 to April 14, 2009.

As shown on chart 2, price of Genting rebounded on the 18th of March, 2009, rising RM1.38 or 40%, but then, precisely resisted by the 200-day MA, and price started to retreat thereafter, which started a technical correction. This shows that the price trend of Genting is still in a long term downtrend, and the recent strong rebound is only a strong technical rebound. However, despite the resistance at 200-day MA, it does not mean that the rally is over. If price of Genting should break above 200-day MA with substantial volume, it is likely to break away from the long term downtrend and continue its rally, which is a new uptrend. This is why we mentioned Genting as technical rebound in last week's article, and stated that it is not forming an uptrend yet.

(Chart 3) Airasia [5099], from April 8, 2008 to April 14, 2009.

As indicated by A, price of Airasia tested the 200-day MA, but precisely resisted at it, thus suggesting the longer trend is still falling. As indicated by B, price of Airasia tested the 200-day MA again after 1 month, and still resisted by the 200-day MA. After being resisted by the 200-day MA, price of Airasia even marked a new low with a gap. As indicated by C, price of Airasia tested the 200-day MA again, but this time, successfully breaking above the 200-day MA, breaking away from the long term downtrend, and started an uptrend. (entering bullish trend). This is the effect of the 200-day MA break out not to be ignored, and therefore, we mentioned Airasia started an uptrend in last week's article, because its price broke above the 200-day MA successfully.

Practical Application of the 200-day MA:

Although we generally use a 200-day MA to define bull or bear market, it is usually too late to blindly follow the break out of break down of the 200-day MA. We must understand that a bull or bear market does not form overnight. All bull run started with a technical rebound, then forming higher-lows, and breaking new highs with substantial volume. Therefore, investors can start buying if the above 3 criteria (Higher-low, New Highs, and Strong volume) remain in place. In short, provided that the above three characteristics can sustain, an uptrend is likely to continue, and if price should break above the 200-day later, then only it can be confirmed as bull trend.

Conclusion:

If investors or traders could identify the characteristic of a reversal pattern (Higher-low, New-high and substantial volume), they can start buying even with the price below 200-day MA. If price should break above 200-day MA later, it would be a better signal for investors to hold on to their positions, as the breakout of the 200-day MA would create a mass consensus of a bullish market, thus a positive note to the market sentiment.

Tuesday, May 12, 2009

Follow the Major Trend.

Chart 1: Relationship between Individual
Share price and the Big Market

Chart 1 shows the relationship between the broader market and the individual counter's share price.

In the professional game of Stock trading, traders or investors need not only understanding companies' fundamental and technical analysis, but also the relationship between an individual counter's share price and the market mood, as well as the broader regional market performances.

With the right market sentiment, chances for a stock price to rally are much higher. In other words, during a bear market, even the share price of the strongest fundamental counter could drop.

In terms of the broader markets, it is usually means the Dow Jones Industrial Average index of the United States of America, and our Asian Pacific indices like Nikkei 225, as well as the Hang Seng Index. In additional, other factors like political issues would influence the share price of individual counters.

The relationship between the KLCI and the regional markets:

In the era of advanced communication technology, financial markets across the globe are moving closer together than ever. With the exception of major local events like elections, political issues, major corporate events, the KLCI performance is usually in-line with the regional markets. Below are the charts of regional markets for comparison.

After falling for 9 months (losing almost 50%), the KLCI rebounded from 801.27 points on the 28th of October, 2008.

The Nikkei 225 index rebounded on the 28th of October, 2008, after reaching its bottom at 6994.90 points. (Losing 62%)

Hong Kong Hang Seng index touched bottom on the 27th of October at 10676 points, and rebounded on the 28th of October, 2008. (Losing 67%)

From the above comparison, we can see that both the Hang Seng index and the Nikkei 225 index rebounded on the 28th of October after falling for quite some time. This shows that the performance of regional markets are closely related.

In addition to the rebound of the 28th of October, 2008, the performance of the above 3 indices are almost identical. After their rebound in October 2008, these indices were moving in trading range, and in March 2009, all 3 of the indices rallied again. Therefore, traders and investors have to study their relationship in order to take advantage of the reversal of trend, other than studying individual counter's fundamental and technical analysis.

Currently, most of the stock markets across the globe are moving higher. Other than the effect of regional market performances, our local fundamental issues are also playing a big role, in which, traders and investors must not ignore. For example, data shows that the outflow of foreign funds in the 4th quarter 2008 is lower than expectation, suggesting foreign investments might be regaining their confident in Malaysian market. If foreign fund should return to Malaysia, it would be a strong support to our market performance.

Another example is the better than expected exports in the month of February. Although the world economy is still weakening, the better than expected exports data in February suggests that the economy might be recovering, which is another positive note to the local stock market. Generally, the stock market react 3 to 6 months earlier than the economic data, and if the economy should recover by the end of 2009, the KLCI is likely to be at its bottom now.

The above positive issues had already reflected on the chart of the KLCI, as the KLCI formed a double bottom after breaking its downtrend line, followed by a formation of a Higher-low, suggesting the KLCI is now moving uptrend. As the KLCI moving in uptrend, individual counters are following the rally. For examples:

1. Genting [3182] - Technical rebound with Higher low.
2. Gamuda [5398] - Continuation of uptrend with Higher low.
3. Resort [4715] - Technical rebound with Higher low.
4. Lionind [4235] - Rounding Bottom with Higher low.
5. Muhibah [5703] - Double Bottom with Higher low.
6. LCL [7177] - Technical rebound with Higher low.
7. MPHB [3859] - Rounding Bottom.
8. Pelikan [5231] - Technical rebound with Higher low.
9. IOI [1961] - Continuation of uptrend with Higher low.
10. Airasia [5099] Beginning of uptrend with Higher low.

Despite the recent rally, the KLCI remained below 200-day Moving Average line. Therefore, there is still a risk for the KLCI breaking below 800 level and resume to its bear run. If the KLCI should break below 800 points, there is a risk for the KLCI to go even lower. (During the 1997 bear run, the KLCI lost 80%).

Nevertheless, with the technical view of the KLCI is slowly improving, coupled with some improvement in fundamental as well as the regional market are also rebounding, investors and traders can take advantage of the current market, but must have a sound trading plan with the use of Trailing Stops.

Conclusion:
Understanding the relationship between the broader markets and individual counter is absolutely important if one wish to succeed in the world of investing or trading. Especially for retail investor, it is very risky to go against the major trend, and most of the time, investors who failed to follow the broad market are caught by the downtrend, and ended up holding a portfolio with huge losses.

Successful investors or trader must learn to pick market leaders while following the broader market performance. Generally, investors could not buy at the lowest price of the leading counters, but that is not important, the important thing is that investors who bough these leaders are applying Trailing Stop method, while taking the advantages of the rally with minimum risk. Successful investors never want to buy cheap stocks at new low.

Trading Plan - Trailing Stop, Part 2

The ability to utilize Trailing Stop method is very important in trading, it is the trading plan for disciplined investors and traders. Last week we mentioned how to make use of Trailing stop to exit a position, for most traders only study their entries but ignore the exits. This week, let's study more on Trailing Stop and its effectiveness in taking profit.

Example 1:

Chart 1: Bursa [1818] chart from 5th of October 2006 to 5th of March 2007.

As indicated by A, price of Bursa [1818] formed a Higher-low above the rising 14, 21, 31 EMA, which is serving as the dynamic support. This is a first "buy" signal (RM 6.15) suggesting a formation of an uptrend. As price of Bursa is rising, the 14, 21, 31 EMA is also rising while continue serving as the dynamic support.

As shown on the chart above, there were many corrections, but after each correction, price is forming more higher-lows above the rising dynamic support. Therefore, for those traders who are holding stocks, they should gradually lift their original cut-loss level (RM 6.15) according to the rising 14, 21, 31 EMA, this has gradually helped these traders or investor to retain their paper profit.

As indicated by B, price of Bursa corrected again, and this time, it broke below the 14, 21, 31 EMA. Therefore, a disciplined trader will need to execute his trading plan and take profit (RM 10.90). This is what it means by "Plan Your Trade and Trade Your Plan.".

As shown at the above example, a disciplined trader could not buy at the lowest nor sell at the highest. However, by using Trailing Stop method, he is taking a minimum risk while riding most part of the uptrend. If he has bought at arrow A (RM 6.15) and sold at arrow B (RM 10.90), he is making a profit of RM 4.75 or 77% (excluding commissions and charges). In contrary, if traders failed to take profit as planned at arrow B, he might have bee caught by the reversal, and lost his paper profit or even turn his profit into losses.

Example 2:

Chart 2: KNM [7164], chart from 28th of September 2007 to 26th of March 2008.

As shown at Chart 2 arrow A, after a round of correction, price of KNM retreated but was supported by the 14, 21, 31 EMA, and then it rebounded, forming a Higher-low, thus a "Buy" signal (RM 5.10), with an immediate cut-loss level at RM 4.58.

As price started rising while supported by the 14, 21, 31 EMA, traders can lift the original RM 4.58 cut-loss level to RM 5.10. As indicated by B, price of KNM rebounded and continue its uptrend, after a consolidation, while still supported by the rising 14, 21, 31 EMA, forming another Higher-low. Therefore, traders can lift the RM 5.10 cut-loss level to RM 5.80.

As indicated by C, price of KNM corrected again, but this time, breaking below the 14, 21, 31 EMA, and therefore, a "Sell" signal (RM 6.80), and for a disciplined trader whom applied the Trailing Stop method, it is time to take profit.

After breaking below the 14, 21, 31 EMA, price of KNM attempted to test the 14, 21, 31 EMA again, but every time it tested the 14, 21, 31 EMA, it formed a lower-high as the 14, 21, 31 EMA is now serving as the dynamic resistance instead, thus suggesting a downtrend, as indicated by D. In other words, as long as price of KNM is still trading below the falling 14, 21, 31 EMA, the downtrend is expected to continue. If traders failed to take profit as planned, they would have been caught by the reversal of trend, thus turning their profit into losses.

The above KNM examples shows how important it is for a disciplined trader to execute the honor his trading plan. With a sound trading plan, he has no worry about when to sell his positions, and the Trailing Stop method also prevented him from holding his positions when the trend reserves.

Case Study Example on Trailing Stop:

Chart 3: AMMB [1015], as at 3rd of April, 2009, closing price : RM 2.63.

As shown on chart 3, price of AMMB is forming an uptrend with T1 being the uptrend line. As shown by circles A, B, and C, price is forming higher-lows while supported by the T1 uptrend line. Therefore, these are the reference level in which traders can adjust their cut-loss level gradually higher as a Trailing Stop method. In addition, trader could even top-up their position as price rebounded at these levels.

Currently, price of AMMB is testing the RM2.70 resistance. If it should break above RM 2.70 with significant increase of volume, it would be a 6 months new high, thus another "Buy" signal. For those investors or traders who are still holding their positions, they should lift the profit-taking level from C to the level as indicated by D, which is the 14, 21, 31 EMA. As for traders or investors whom decide to buy at a break out, the level as indicated by D would be an immediate cut-loss level.

Fundamental of AMMB:

	Major Shareholders	Shares	%
1	ANZ Funds Pty. Lltd	521,926,229 shares	19.17%
2	HDM Nom. Pl. Sec-AMCORP Groupd Bhd.	275,000,000 shares	10.10%
3	EPF Board	245,264,100 shares	9.01%
4	AMCGroup Bhd.	199,635,083 shares	7.33%
5	HSBC (AS)-TNTC-M&G Global Basic Fund	68,000,000 shares	2.50%

Dividend		Dividend Yield	Net Profit Ratio
2008	6 sen	1.56%	11.13%
2007	5 sen	1.33%	-3.38%
2006	5 sen	1.77%	7.34%
2005	4 sen	1.42%	4.35%
2004	4 sen	0.99%	5.20%

Based on the RM 2.63 closing price:

Price Earning Ratio

7.89 times

Dividend Yield

2.28%

As shown on the table above, AMMB is not considered to be a high-yield stock, thus usually not a first choice of long-term, high dividend yield investors. Therefore, this is more suitable for medium term traders, whom has to equipped himself with the skills of Technical Analysis, and apply a proper trading plan.

In conclusion:
Investors or traders must have a sound trading plan before deciding to buy any stocks, and the most effective way is to apply a Trailing Stop method. Although, using Trailing Stop method, investors or trader usually can not buy at the lowest, nor sell as the highest, it is still a best trading plan for it help traders to reduce their trading risk while maximize the length of riding with the uptrend. In addition, it also prevent traders from stubbornly holding on to their position when the trend reverses.

Trading Plan - Trailing Stop, Part 1

Chart 1: KLCI chart since 1987 until recent, showing the three biggest uptrend.

An informed investor knows that every bull run starts after every bear run, as shown on chart 1. We mentioned some stock pick models in our previous articles and let's study the next important issue -how to take profit. During a bull run, stock picking is usually not the hardest for most stock are trending up, and therefore, chances in picking the uptrend stock is much higher, but the important skill is to maximize the potential of the uptrend and knowing how to take profit skillfully.

Other than profit taking, a proper cut-loss plan is also important, in which investors should have their trading plan laid out before buying any shares, this is because no matter how, there are still some risk in trading or investing.

There is a general miss-understanding in the world of trading, which is to always buy at the lowest, and sell at the highest, some even claim to buy even lower than the lowest. However, an experienced or skillful investor knows that most of the time, we can not buy the lowest nor sell at the highest, and there is no perfection is very trade. In fact, provided that the trading plan is right, it is totally fine to buy high and sell higher.

We had mentioned that buying lower or at new low is a highly risky approach, and the chances of making losses during a downtrend or new low is much higher, and many investors are stuck with their losses positions while holding their stocks during a downtrend, because they wanted to buy lower. On the other hand, investors are too afraid to lose money during an uptrend, and generally sell too early. These are typical for investors who has no proper trading plan.

There is a famous quote about trading plan, which is to 'plan your trade, trade your plan.' The idea is simple, investors have to plan their trade before buying, be prepared for all the possible things that might happen, and after buying, they should follow what they have planned, and do the right thing that they had planned is situation arise.

In trading plan, the most important fundamental is Trailing Stop. The idea of trailing stop is to limit the trading risk by following the direction of the trend. If the price is trending up, investors can apply an Exponential Moving Average to serve as the trailing stop method, and as price is moving higher, investors should lift their stop loss level higher accordingly.

If Trailing Stop method is applied correctly, this would help investors to minimize their trading risk to cut loss if price should reverse and break below the uptrend line. In addition, Trailing Stop method would also help investors to maximize the potential of their position during an uptrend, and avoid selling too soon before the uptrend is violated.

For example, we mentioned Maybulk [5077] in our past article, and the uptrend was suitable for conservative, high dividend investor, or fund managers. Let's study Maybulk [5077] again here to find out if we could apply Trailing Stop method in analyzing this counter.

Chart 2: Maybulk [5077], chart from 4th of November 2008 to 24th of March 2009, with 14, 21, 31 EMA as the uptrend trailing stop reference.

Description:
A	After some profit taking, price of Maybulk retreated but found its support at the 14, 21, 31 EMA, forming a Higher-Low, thus a buy signal. (RM 2.30)
B	Another round of profit taking, and price retreated again but remained supported by the 14, 21, 31 EMA dynamic support. Here, investor can lift their previous cut-loss level of RM 2.30 to RM2.50 level.
C	Price of Maybulk continued its uptrend after consolidated above the 14, 21, 31 EMA. Therefore, as price is still trending up, investors can slowly lift their cut-loss level from RM 2.50 to RM 2.70 level.
D	Price of Maybulk hit a resistance at RM 3.04 and corrected. However, again, it is supported by the 14, 21, 31 EMA, this shows that the 14, 21, 31 EMA is still the uptrend dynamic support for Maybulk. Therefore, investors can now move their cut-loss level from RM 2.70 to RM 2.90.

As shown on chart 2, price of Maybullk is still trending up, and the original cut-loss level of RM 2.30 has been lifted to RM 2.90 level. If price should break below RM 2.90, it would be a signal for profit taking. In other words, investors who apply the Trailing Stop method correctly are lowering their trading risk while retaining a paper profit of RM 0.60. In short, this is the most effective trading plan.

With the use of Trailing Stop method, investors will not have to worry about not knowing when to take profit or cut-loss, and not to mention the common worry about selling at the highest of the uptrend. Simply put, as long as the price is still trending above the uptrend line, or the rising moving average line, investors should hold on to their positions until price should break below the uptrend line. When price breaks below the uptrend line, taking profit or cutting loss should be done without any hesitation for this is what investors had already planned for, this is an important skill which all successfully investors must have.

In conclusion:
After picking the right stock, the next question is when to take profit. If they had picked the wrong stock, the next question is when to cut-loss. Lastly, an important note is that when applying Trailing Stop method, the cut-loss level should only be lifted up and never shifted lower.

Source : WinChart, Straits Index (M) Sdn Bhd http://www.straitsindex.com/

Picking Market Leader after Bear Market.

We had a bear run for over a year now, and most investors are making losses as the result of bear market. Over this year, market volume has reduced significantly, thus the market participation is low and quiet as some choose to stay on the sidelines while waiting for a better condition, and some choose to ignore the stock market at all. Nevertheless, some investors are doing their home work while preparing for the next market boom. These investors know that the best opportunity to pick quality stocks is after a bear market, and well-preparation is essential.

Chart 1: KLCI chart from August 1998 to March 2000. Lowest 261.33 points (01/09/98), highest 1021.20 points (18/02/2000).

As shown on the chart 1, the KLCI rebounded strongly at 261.33 points after the Asian Crisis of 1997, and the KLCI started a bull market thereafter, and reached a peak of 1021.20 points, up a total of 290%. This shows that the best opportunity to invest is right after the end of the bear market, and this opportunity is only available for those who are well-prepared.

Last week, we mentioned Public Bank, for most of the time, banking stocks are usually the market leader when the stock market recovers, and therefore, it will be a good idea to include a banking stock in one's portfolio. Take a look at the following stock chart of Maybank during the market recovery in the year of 1998.

Chart 2: Maybank chart from August 1998 to March 2000. Lowest RM 2.73 (14/08/98) and highest RM 18.10 (18/02/2000).

Below is the Technical and Fundamental aspect of Maybank:

Chart 3: Maybank chart as at 20/03/09, closing price : RM 4.36.

As indicated by A, price of Maybank consolidated above the RM 5.00 support level for nearly 5 months. Theoretically, a support will form after a prolonged consolidation, as investors begin to accept the price and start accumulating their positions. However, as indicated by B, price of Maybank broke below RM 5.00 on the 2/03/2009, and started making new lows. In other words, for those who had bought their shares of Maybank above the RM 5.00 level, they are now making losses. Therefore, their previous consensus of RM 5.00 support is now becoming their 'break-even' level, thus a resistance level. This is because if price should return to RM 5.00, many of these loss making investors will be breaking even.

As shown on chart 3, price of Maybank rebounded at RM 3.90 level, and therefore, the latest support for Maybank is at RM 3.90. Since price of Maybank is still below the falling 14, 21, 31 EMA, the rally is only considered as a technical rebound, now a reversal. On the other hand, if price of Maybank should break below RM 3.90, then it would be another new low; therefore, investors should consider cutting loss. In short, price of Maybank must form a higher-low together with the broad market recovery, then only it is considered to be a reversal signal, thus a better timing to buy.

Here are some fundamental information of Maybank:

	Share Holder	Shares	%
1	Amanah Raya Nom-Skim Amanah Saham Bumiputra	2,180,681,634 shares	44.67%
2	EPF Board	500,281,336 shares	10.25%
3	Permodalan Nasional Bhd	320,776,808 shares	6.57%
4	Kumpulan Wang Persaraan	137,195,625 shares	2.81%
5	Lembaga Kemajuan Tanah Persekutuan (FELDA)	124,622,156 shares	2.55%

Latest financial figures:

Dividend		Dividend Yield	Net ProRatio
2008	52.5 sen	7%	18.13%
2007	80 sen	6.5%	20.95%
2006	85 sen	7.49%	22.07%
2005	102.5 sen	9.4%	22.31%
2004	60 sen	5.94%	23.04%

Based on the current closing price of RM 4.36:

Price Earning Ratio

8.14 times

Dividend Yield

12.04%

Table 1:

Based on the above information, Maybank is considered a high dividend yield stock while its Net Profit Ratio is consistently high as well. Therefore, it is most likely a favorable stock for long term investors, high yield investors and conservative investors. In addition, based on the major share holding listing, Maybank is a major GLC (Government Link Counter), and therefore, if the market should recover as a whole, it would be one of the leader.

Negative news on the acquisition of BII (Bank Internasional Indonesia), coupled with negative market sentiment across the globe, causes the fall of Maybank share price. However, these negative impact has been reflected on the price of Maybank. This is a basic theory of Technical Analysis, which believes that price discount everything. As for when is the best time to buy Maybank, we will still have to look at the formation of any of the following reversal patterns: 1. Higher low. 2. Double Bottom. 3. Rounding Bottom.

Conclusion:Based on the current market sentiment, together with a 0.5% GDP for the year of 2009, chances for the KLCI to return to 1500 points is less likely. While the market maybe at its bottom, the important point is that investors should get prepared and ready for the reversal, and know how to pick market leaders as the market reverses.

Copyright © 2009 Straits Index (M) Sdn BhdImportant Disclaimer:These content provided by Straits Index (M) Sdn Bhd is solely for education and information purposes only, and do not suggest any investment advices. All information displayed are believed to be accurate and reliable. Interpretation of the data or analysis is at the reader's own risk. Straits Index (M) Sdn Bhd reserves the rights but obligations to update, admen, or even terminate the materials. 重要声明:以上的内容由海峡指数(马)私人有限公司提供,纯粹是教育性质, 并不是任何的投资忠告。所有资料显示认为是准确和可靠的。对数据或分析的解释和用途是在于用户自己的风险。海峡指数(马)有限公司持有保留及义务更新,甚至终止材料的权利。

Source : WinChart, Straits Index (M) Sdn Bhd http://www.straitsindex.com/

Stock Selection after a Bear Market.

Since the end of February of the year 2008, our market started its bear run, until now, many stocks had fallen more than 50% of their share prices; therefore, when it comes to stock selection after the bear run, blue chips counters would be the priority for most of these blue chips counters are now trading at a very attractive price, also, selecting good fundamental blue chips counters can also avoid unnecessary trading risk.

When the stock entered a bear run, even the heavy weighted blue chips counters can not avoid the downtrend. For example, Public Bank, one of the most reputable counter in Bursa Malaysia, was affected by the downtrend.

The share price Public Bank has falled RM 4.85 or 67.8% from its highest of RM 12.00 to RM 7.15. Although share holders had received a RM0.55 dividend (before tax) and some bonus shares, it barely covers the lost in term of share price. Since Public Bank is usually the leader when the stock market recovers, investors should consider it as part of their portfolio.

With the share price of Public Bank getting lower, it has definitely attracted many investors. However, based on the rule of "Buying only on the uptrend", it is usually high risk to catch stocks trading at new low. Therefore, we shall analyze Public Bank's fundamental as well as technical aspect before deciding a proper trading strategy.

(Chart 1): Daily Chart of Public Bank as at 13/03/2009: Closing price RM 7.15

As indicated by A, price of Public Bank formed a short term uptrend, price rose from RM 7.87 to RM 9.25, up RM 1.40 or 18.8%. As shown on the chart above, the 14, 21, 31 EMA also served as the uptrend dynamic support. As indicated by B, price of Public Bank started falling after its ex-dividend and share dividend, brealomg below the 14, 21, 31 EMA. Therefore, it forms a downtrend with the 14, 21, 31 EMA becoming its dynamic resistance.

Currently, price of Public Bank is testing its RM7.00 psychological support level. If the price should break below RM 7.00 level, it would be another new low, this shows that the selling force is still greater than the buying interest. In other words, as long as the price is still trading below the falling dynamic resistance, the downtrend is likely to continue.

(Chart 2): Weeky chart of Public Bank.

As shown on Chart 2, price of Public Bank broke below the 14, 21, 31 Weely EMA on 20th of June, 2008, entered its downtrend. Despite a few attempts to break the downtrend, price of Public Bank remained resisted by the falling 14, 21, 31 weekly EMA which serves as the dynamic resistance. Theoretically, whenever stock price started to retreat after being resisted by the dynamic resistance or downtrend line, share-holders will be losing money, and therefore, they would unconsciously have a stronger memory as the resistance level, and this has indirectly increased the selling pressure at the resistance level.

Fundamental of Public Bank:
Major Share Holders:
1 EMPLOYEES PROVIDENT FUND BOARD 284,904,906 shares (8.50%)
2 SEKURITI PEJAL SB 201,394,686 shares (6.01%)
3 KEPUNYAAN CHINTAMANI SB 84,482,031 shares (2.52%)
4 CONSOLIDATED TEH HOLDINGS SB 79,479,687 shares (2.37%)
5 SELECTED SEC SB 76,116,562 shares (2.27% )

Latest Financial Results as at 31/12/2008:

P.E. Ratio	10.26 times	Dividend Yield (%)	7.33%

Dividend (Sen)		Dividend Yield (%)	Net Profit Ratio
2008	55	6.29%	24.5%
2007	80	6.82%	22.22%
2006	60	7.79%	22.89%
2005	55	8.66%	24.50%
2004	90	12.68%	25.11%

(Table 1):

Based on the major share holders list, the majority share holders are mainly Tan Sri Teh and the EPF. Table 1 shows that the dividend yield for the the past 5 years has an average of 8.4%, which means that Public Bank is considered a high dividend yield stock, this is usually a favorite of long-term investors or high-yield stocks investors. In addition, its Net Profit Ratio is also consistently high, suggesting its business is stable and consistently profitable.

If the stock price of Public Bank should continue to fall, its Dividend yield would be higher, which would make it even more attractive. But still, despite its higher yield, the major market sentiment is still weak, coupled with the financial sector is highly sensitive at this particular moment, it is still very risk if investors should buy Public Bank now and go against the trend.
With no signs of any reversal patterns, the best strategy for Public Bank is still wait and see, but investors should be looking at the price closely to see if it forms any of the following reversal patterns.

Chart 3a: Higher Low

Stock price rebound at a level higher than the most recent low, breaking above the downtrend line with volume significantly increasing.

Chart 3b: Double Bottom

Stock price rebounded at the same level as the most recent low and then breaking above the downtrend line with significant increased of volume.

Chart 3c: Rounding Bottom

When stock price stopped declining as started to move sideways, investors slowly regain their confident as the share price started rising gradually. Generally, the formation of Rounding bottom takes longer and price usually breaks above the downtrend line before an obvious rally. Best confirmation of the rounding bottom would be a significant increased of volume during its rally.

The above 3 patterns are the classic reversal patterns, and if the price of Public Bank should form any of the reversal patterns together with the market recovery, chances for investor to catch the right trend is significantly higher.

Currently, price of Public Bank is falling drastically, it has its biggest fall of two weeks in history. Nevertheless, price of Public Bank formed a Harami Cross last Friday, which is a signal suggesting a possible short term rebound. Therefore, short term or aggressive investors might be taking chances to catch a possible rebound.

In conclusion:Public Bank is a fundamental strong counter, suitable for long-term, conservative, high-yield, or bottom-fishing type of investors. Despite the price is getting lower, it is not the best timing yet, and the best strategy for investors is still to wait and see, until a formation of a reversal pattern.

Copyright © 2009 Straits Index (M) Sdn BhdImportant Disclaimer:These content provided by Straits Index (M) Sdn Bhd is solely for education and information purposes only, and do not suggest any investment advices. All information displayed are believed to be accurate and reliable. Interpretation of the data or analysis is at the reader's own risk. Straits Index (M) Sdn Bhd reserves the rights but obligations to update, admen, or even terminate the materials. 重要声明:以上的内容由海峡指数(马)私人有限公司提供,纯粹是教育性质, 并不是任何的投资忠告。所有资料显示认为是准确和可靠的。对数据或分析的解释和用途是在于用户自己的风险。海峡指数(马)有限公司持有保留及义务更新,甚至终止材料的权利。

Source : WinChart, Straits Index (M) Sdn Bhd http://www.straitsindex.com/

Buy only on Uptrend rebound.

Last week, we had discussed the risk of buying on "New Low", and this week, let us study when investor should start buying.

When a stock started to rebound from its lowest point, it must first break its most recent resistance, and after some profit taking activities, price should retreat. However, if price should rebound again at a level higher than the previous rebound, after some profit taking, it would be forming a "Higher-Low". In short, the characteristic of an Uptrend is "New High" and "Higher-Lows".

Not only investor can buy at "Higher-Low", investors could also top up their positions at every "Higher-low" of an uptrend.

(Study Chart 1).

Buying on "Higher-Low" is a very important trading concept, but not all investors can accept this concept, for this concept will discourage traders to buy at the lowest price.

(Chart 1): (A) indicated formation of "Higher-low".
If there are 5 corrections in an uptrend, the last correction would be a reversal. In other words, if traders would buy at every rebound during an uptrend after a correction, chances for traders to buy correctly in the uptrend is 4/5, which is 80%, and the chances to buy at the reversal is 1/5, which is 20%. This has simply outlined the probability of trading right in an uptrend, and therefore, buying at new low is indeed a very risky method.

Below is an example of Buying only at Uptrend Rebound:

Malaysian Bulk Carriers Bhd. - Maybulk [5077]

(Chart 2): Maybulk [5077] as at 02/03/09, closing price at RM2.82.

As indicated by A, B, and C, price of Maybulk is trending up, and forming "Higher-lows". We had chosen to apply the 14, 21, 31 EMA as the dynamic support for this uptrend. Provided that price of Maybulk could remain supported by the rising 14, 21, 31 EMA, the uptrend is expected to continue, and rebounds like A, B, and C, would be buying signals.

Technically speaking, the best confirmation of "Higher-lows" would be a significant increased of volume during a rally. As shown on Chart 1, price of Maybulk has broken above RM 2.77 resistance, and therefore, the RM 2.77 is now the immediate support. Next resistance for Maybulk is seen at RM 3.40. If price should break below the 14, 21, 31 EMA or RM 2.77, it would be a signal to take profit or to cut loss.

Below are some fundamental information of Maybulk:Major Share-holders:1. PACIFIC CARRIERS LTD 344,615,000 Shares (34.46%)2 BANK PEMBANGUNAN MSIA BHD 183,945,700 Shares (18.39%)3 MALAYAN SUGAR MANUFACTURING CO. BHD 79,845,600 Shares (7.98%)4 PPB GROUP BHD 60,154,400 Shares (6.02%)5 EMPLOYEES PROVIDENT FUND BOARD 26,921,225 Shares (2.69%)

Latest Financial Result as at 31/12/2008:

PE Ratio	5.19 Times	Dividend Yield	13.82%
Previous Yearly Dividend Yield
2008		14.44%
2007		8.96%
2006		11.15%
2005		8.06%
2004		4.65%

(Chart 3): Baltic Dry Index

Based on the previous yearly dividend yield, Maybulk is considered as high dividend yield stock, which is usually a favorite choice of Fund Managers, High Dividend investors, or conservative investors. With its latest PER only at 5.19 times, it means that the current price of Maybulk is relatively low.

On the other hand, the Baltic Dry Index (BDI) had rebounded 1351 points from its 2008 low of 663 points, or a 200% rebound. (Study Chart 3). The BDI is an index that measures the demand for shipping capacity versus the supply of dry bulk carriers. If the BDI should continue rising, it would be suggesting that the demand of dry bulk shipping is increasing, which is a positive factor for Maybulk.

Based on the previous yearly average Price-Earning-Ratio, if Maybulk's earning is as good as last year, it would have a potential of reaching its target price of RM 4.84. Nevertheless, with the overall market sentiment across the globe still being weak, the overall trading risk is still high, despite the good fundamental of Maybulk. If the BDI should fall, it means that the international demand on dry bulk shipping is still not recovering, thus suggesting the global economy is still on the weaker side, and this would directly affect the upside potential of the price of Maybulk.

In conclusion:When a stock price has ended its downtrend and started to rebound, it would form "Higher-lows". If traders should buy only on the uptrend rebound, chances for him or her to buy at the last rebound is only the last rebound before the uptrend ends, thus the probability of buying right is good. Nevertheless, if price of Maybulk should break below the 14, 21, 31 dynamic support or RM 2.77 level, it would be a signal to take profit or to cut-loss.