Bursa Malaysia Technical Analysis & Stock Trading: November 2009

Monday, November 23, 2009

Trailing Stop II: Dynamic Trailing Stop.

Last week, we mentioned Fixed Price Retreat Trailing Stop Method, and let us discuss the next type of Trailing Stop method, a Dynamic Trailing Stop.

While the Fixed Price Retreat Trailing Stop method uses the maximum retreat of a highest closing price as a reference price to stop loss or to take profit; Dynamic Trailing Stop uses a dynamic support as a reference.

The Dynamic Trailing Stop method is most suitable for stocks which are trending. Generally, the Bollinger Middle Band and the 14, 21, 31 EMA are quite effective as trailing stop reference.

When a stock price has just breaking away from a sideways consolidation, the Bollinger Bands is the best indicator, and the Bollinger Middle Band shall serve as the immediate trailing stop reference. As price risen for a few days, and begins to form a trend, investors should switch to 14, 21, 31 EMA as the dynamic trailing stop reference, for the 14, 21, 31 EMA could track a longer term uptrend.

This way, investors would not take profit too early and miss out the potential long term uptrend. In short, as long as the stock price is still above the dynamic trailing stop, investors should not take profit.

Examples:

Chart 1: AMMB – 1015, chart from 4/6/2009 to 29/07/2009.

As indicated by A, the Bollinger Bands re-expanded, with price above the Bollinger Middle Band, suggesting a beginning of a bullish biased movement after breaking away from a consolidation. Therefore, as indicated by B, the Bollinger Middle Band shall serve as the immediate trailing stop reference. If price should failed to stay above the Bollinger Middle Band, it is a signal to cut-loss.

In other words, if price should stay above the Bollinger Middle Band, there is a good chance that it might be forming an uptrend. However, there will be corrections and consolidation for a healthy uptrend, and price can not sustain an continuous rally. When using only the Bollinger Middle Band as dynamic trailing stop, price could break below the Bollinger Middle Band during a correction, and investors might could have taken profit too early. Therefore, when the conditions allow, investors should consider switching from Bollinger Middle Band to 14, 21, 31 EMA as the dynamic trailing stop. (Refer to Chart 2)

Chart 2: AMMB – 1015, chart from 17/6/2009 to 17/11/2009.

Although the Bollinger Bands is a reliable indicator, for the investor who are already in position, and making profit, they shall not need the Bollinger Bands to find buying signals anymore. But instead, they will need an indicator which could track a longer trend.

Arrow A, is the entry level by using the Bollinger Bands. When price begun to move up, trader switch to 14, 21, 31 EMA for a potential longer trend tracking. As long as price is still supported by the rising 14, 21, 31 EMA, there is no strong reason to take profit. And when price should break below the 14, 21, 31 EMA, it is time to take profit. As indicated by B, price of AMMB is still above the rising 14, 21, 31 EMA, which means that the uptrend is still intact.

Chart3: AMMB – 1015, chart from 28/07/2009 to 16/11/2009.

When using the 14, 21, 31 EMA as dynamic trailing top, many investors would ask a similar question. “There are 3 lines of MA, and which one should I follow to cut-loss of to take profit?” Please refer to the table below:

Indication	Action
A	Stock price technically corrected, breaking below the 14-day EMA. For those investors who are already in position, should consider the broad market condition, and if the condition is still positive, this is just a short term warning signal, and investors can choose to keep their position. However, if one should feel uncomfortable, this is a signal to take partial profit, by selling 1/3 of the position, and keep the rest of the position for the uptrend is still intact.
B	After a correction, price rebounded, and resumed its uptrend. The 14, 21, 31 EMA continues serving as the uptrend dynamic support as well as the trailing stop reference.
C	Stock price technically corrected again, but still supported by t he 14, 21,3 1 EMA.
D	Despite several correction, the 14, 21, 31 EMA is still tracking the uptrend.

Table 1:

As indicated by chart 3, by using the 14, 21, 31 EMA as a dynamic trailing, not only it can protect your paper profit, but also maximizing the potential uptrend return. When price should break below the 14, 21, 31 EMA, it means that the uptrend is no longer valid, thus a signal to take profit.

Conclusion:
Generally, when stock begins to move higher, the Bollinger Middle Band is a good signal for entering a position. If price should failed to stay above the Bollinger Middle Band after you bought your share, it is a signal suggesting that the uptrend has failed to form, thus a signal to cut-loss. When price started to move, it is time to switch to 14, 21, 31 EMA, to track a potentially longer uptrend, by maximizing the profit by delaying profit taking.

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Trading Plan Check-list.

There are too many factors that could affect the stock market, and therefore, no one could 100% predict the stock price movement. Even though one could understand the general market movement, companies getting listed will increase over time, and therefore, picking the right stock is certainly not easy. Some investors choose to rely on a computer program to automatically pick stocks for them, but eventually found out that it does not work. After wasted their time and money, they learned nothing in picking stock. Picking the right stock, is not like buying a loaf of bread, one should take it seriously and be responsible.

To be able to pick stock, one should have the right skills and knowledge, and not to mention experience and the correct mindset. Computer program and indicators can only provide the statistic.

Nonetheless, investors still need to start from some where. Therefore, we had prepared a sample Trading Plan Check-list for investors, especially beginners, as a guideline.

Stock-pick and Trading Plan Check-list:

Trading Objective: ______________________ (1)

Stock Name / Business Nature: __________________(2)

Sector: __________________ (3)

Fundamental Analysis:

PER: _______________ (4) Dividend Yield __________________ (5)

Yearly Dividend: ___________(6) Yearly Dividend Yield:___________(7)

Net Profit Ratio: __________(8)

Technical Analysis:

Buy Signal: __________(9) Maximum Loss: __________ (10)

Support:__________(11) Resistance :__________(12)

Trading Plan / Trailing Stop:

If Price Should Go Up:__________ (13) Trailing Stops and Profit Taking Plan.

In conjunction to the above trading plan check-list, below are some important questions that one should ask themselves before deciding on any trade.

1	Trading Objective: Understanding the characteristic of this stock that you pick, for long term, dividend income, for trend trading, or for short term rebound? Initial objective shall not be altered, unless profit is yield.
2	Company's Name, and its nature of business, where does the revenue come from?
3	Understanding Sector: Because stock mostly don't move alone, and therefore, to understand the trading sectors, is a first time towards understanding the mass movement of the market.
4	Current Price Earning Ratio of stock. Make sure it is relatively not too high (Refer to Chart 1)
5	Dividend Yield: Dividend received is another source of trading income. Especially for long term investors.
6	Based on the dividend paid-out history, one can safely guess that the company has cash, therefore, they can pay out dividend. （Refer to Chart 2）
7	Higher Yearly Dividend Yield: A higher than 5% dividend yield is usually considered as high yield stock. Suitable for long term investors who seek for consistent dividend income. (Refer to Chart 2)
8	Net Profit Ratio measure the portion of the total revenue received which can be retained as net profit. A company which has a good Net Profit Ratio generally manage their expenses well. (Refer to Chart 2)
9	Buy Signal: Using Bollinger Bands, Moving Averages, Patterns Break out. Etc.
10	If price should fall immediately after buying, it means that either the market has changed, or the analysis was not done right. Either one of the reason, it is only logic for investors to cut-loss.
11	Support level, is a level which price is most likely to rebound. Therefore, if your cut-loss point is very near or at the support level, you might want to wait for a possible rebound. If price should break below the support, price would be making new-low, thus a signal to cut-loss.
12	Resistance level, is a level which price is most likely to retreat. Therefore, should price approach a resistance, it is generally safer not to top up position at resistance level, unless a valid break out above the resistance.
13	Trailing Stop: When price is moving higher, and one should take profit too early, he or she might miss the potential strong uptrend. Therefore, one should never worry about selling at the top, but instead apply a trailing stop method, by raising the stop-loss level gradually as price moves up. (Refer to Chart 3)

Chart 1: Company's Financial Summary with PE and Dividend Yield.

Chart 2: Yearly Dividend, Dividend Yield, and Net Profit Ratio.

Chart 3: 14, 21, 31 EMA serving as the dynamic support as well as the Trailing Stop reference.

This week's Case Study: Maybank

Chart4: Maybank - 1155, chart from 28/07/2009 to 19/11/2009.

As indicated by A, the Bollinger Bands of Maybank has been contracting for a certain period, suggesting that price of Maybank is consolidating. Current, there is some sign of a re-expansion of the band width, with the price above the Bollinger Middle Band, the immediate outlook for Maybank is on the positive side. If the Bollinger Bands should re-expand with price staying above the Bollinger Middle Band, there is a good chance that price of Maybank could break above the RM 7.00 resistance. Then, the Bollinger Middle Band shall serve as the dynamic support as well as a trailing stop reference.

In other words, provided that price of Maybank is still supported by the Bollinger Middle Band, the upside biased movement shall carry on. Until price should break below the Bollinger Middle Band, it would be a signal to take profit. Other than the Bollinger Middle Band, the support for Maybank is at RM 6.60 level. Therefore, if an investor should fill out the Trading Plan Check-list, he or she shall find out the elements required for trading right.

Financial Summary as at 30/9/2009.

4 Q Rolling PER	34.36 times	Dividend Yield	1.15%
Dividend		Dividend Yield	Net Profit Ratio
30/6/2009	8 sen	1.23%	3.93%
30/6/2008	52.5 sen	7.00%	18.13%
30/6/2007	80 sen	6.50%	20.95%
30/6/2006	85 sen	7.94%	22.07%
30/6/2005	102.5 sen	9.40%	22.31%

Table 1: Maybank Financial Summary

Conclusion:

There are many investment vehicles in the market, be it Stocks, Unit Trust Funds, Futures, Options, Forex, and etc. Each product has their trading rules and risk, and there is certainly no short-cuts in getting rich in trading. One should always aware that trading is a Zero-sum game, and therefore, should anyone be promising any trading product is easier to make money than others, you would just have to ask yourself one question: “If the money is easily made, then where does my profit come from?”

Nothing is free, and so as no one could give you any trading advice in just a few minutes. Every one is different, his investment mentality, knowledge, capital, etc. Therefore, even if one should found an advice from a so-called expert, the advice will only temporary do good to the investor. Therefore, one should be able to answer the above questions in the trading plan check-list before deciding on a trade, and eventually, there is no need to seek for advices from 'experts'.

Trailing Stop (1).

When the market is bullish, most stock price goes up, and the chances of buying a right stock is pretty high. But, the profit taking trading plan is still very important, for the paper gains are not guaranteed.

Other than profit taking, the cut-loss plan is also as important, and therefore, investors should always have a proper trading plan, which includes, buying, profit taking as well as cutting loss, and the right method is to apply trailing stop, which is a method best used by professional, and suitable for position trading.

Basically, there are 3 types of Trailing Stops: (1) Fixed Price Retreat Trailing Stop. (2) Dynamic Trailing Stop, and (3) Yesterday's Low Trailing Stop.

This week, let us discuss on Fixed Price Retreat Trailing Stop.

The idea of Fixed Price Retreat Trailing Stop is very simple, which is the calculate a maximum retreat from the latest closing price, and use that price as a profit-taking or cut-loss point. When price is rising, re-adjust the Trailing Stop level, by lifting the level according to the latest closing price. This is to ensure to maintain a positive position, as well as to retain paper profit, while lowering trading risk gradually.

Day	Closing Price	Next day Cut-loss point (8% below closing price)	Action
1	RM1.00	RM0.92	Hold
2	RM1.05	RM0.966	Lift Cut-loss point, hold.
3	RM1.15	RM1.06	Lift Cut-loss point, hold.
4	RM1.20	RM1.10	Lift Cut-loss point, hold.
5	RM1.50	RM1.38	Lift Cut-loss point, hold.
6	RM1.80	RM1.66	Lift Cut-loss point, hold.
7	RM1.78	RM1.66	Keep the same Cut-loss point *, hold.
8	RM1.70	RM1.66	Keep the same Cut-loss point *, hold.
9	RM1.68	RM1.66	Keep the same Cut-loss point *, hold.
10	RM1.67	RM1.66	Keep the same Cut-loss point *, hold.
11	RM1.65	RM1.66	Take profit.

Table 1: Fixed Price retreat Trailing Stop table.

*Trailing stop level can only be lifted up, not shift down.

As shown on table 1, the Fixed Price Retreat Trailing Stop method is very rational, but less flexible. Therefore, this type of trailing stop is only suitable for low volatile stocks, which has strong fundamental. Meanwhile, it is important to remember that to adjust the trailing higher as price is moving higher, but one can never adjust the trailing lower when price is falling. In short, as long as the correction from the latest closing price is less than the maximum loss, say 8%, investor should hold on to their positions, to maximize the potential of the long term uptrend.

Chart 1: GAB – 3255, weekly chart from December 2008 to 6/11/2009.

As shown on chart 1, since December, 2008, price of GAB has been moving in uptrend. Despite many corrections and consolidation, price has never treated more than 8% from its closing price. Therefore, with the Fixed Price Retreat Trailing Stop method, investors who had bought the share earlier shall be able to hold on to their positions until now. This way, investors will not have to worry about not able to sell their share at the highest price, but rather to maximize the potential of the current uptrend.

Financial Summary as at 30/6/2009：

4 Quarters Rolling PE	15.87 times	Dividend Yield	5.50%
Dividend		Dividend Yield	Net Profit Ratio
31/06/2009	41仙	6.27%	11.05%
31/06/2008	44仙	8.46%	10.54%
31/06/2007	45仙	7.63%	10.50%
31/06/2006	42仙	7.71%	13.13%
31/06/2005	41仙	7.26%	11.34%

Table 2: Financial Summary of GAB

Chart 2: HAIO – 7668, weekly chart from 5/12/2008 to 12/11/2009.

As shown on chart 2, price of Haio stated its uptrend in the end of 2008, and around March of 2009, the uptrend of Haio accelerated. During this uptrend, there were many corrections and consolidation too, but the corrections were the best type of correction, which was a sideways low volatility movement. Therefore, provided that investors are following the Fixed Price Retreat Trailing Stop method, there is no need to worry during the consolidations, as long as price does not retreat more than 8% from its recent highest closing price. This way, investors will not sell their position too early during a consolidation and missing the strongest rally in September, 2009.

Financial Summary as at 31/7/2009：

4 Quarters Rolling PE	11.75 times	Dividend Yield	5.28%
Dividend		Dividend Yield	Net Profit Ratio
31/04/2009	42 sen	9.46%	11.96%
31/04/2008	40 sen	10.42%	12.97%
31/04/2007	18 sen	8.11%	11.29%
31/04/2006	8 sen	6.35%	7.06%
31/04/2005	6 sen	6.00%	3.95%

Table 3: Financial Summary of Haio.

Chart 3: Public Bank – 1295, chart from 11/3/2009 to 12/11/2009.

Public Bank is a reputable high dividend counter, but despite the strong fundamental and track record, price of Public Bank will also retreat and form a downtrend when the stock market in general is having a bear run. Therefore, the Fixed Price Retreat Trailing Stop method shall protect investor from holding shares during a bear run, while helping investors to remain in position during an uptrend.

Financial Summary as at 30/9/2009：

4 Quarters Rolling PE	14.98 times	Dividend Yield	5.02%
Dividend		Dividend Yield	Net Profit Ratio
31/12/2008	55 sen	24.58%	6.29%
31/12/2007	75 sen	22.22%	6.82%
31/12/2006	60 sen	22.89%	7.69%
31/12/2005	55 sen	24.50%	8.66%
31/12/2004	90 sen	25.11%	12.68%

Table 4: Financial Summary of Public Bank.

Conclusion:

The hardest part of investing is not about buying, it is when to take profit or more importantly, when to cut-loss. It would be fruitless if one could find a best entry point but missing the right exit point. Or, if one should failed to cut loss, it will most likely result in losses that are too huge to recover, despite the low entry cost. The Fixed Price Retreat trailing stop method discussed here is suitable for low-fluctuated, strong fundamental counters. When using trailing stop, the cut-loss point or profit taking point can only be lifted with the rally of price, and it can never be shifting down. In short, if investors had prepared for their maximum loss, say 8%, the biggest risk after buying would be around 8%, and when the stock is moving up, and until the end of an uptrend, investors is not going to sell at the highest of the trend, but only around 8% below its highest closing price.

Identifying Reversal (cont.)

Last week, we mentioned about two possible scenario for the FBM KLCI, and the KLCI moved up with one of the Scenario (Study Chart A and B).

(Chart A) A bullish scenario for the KLCI.

(Chart B) FBMKLCI Last week's movement.

From chart A and B, we can see that the KLCI has resumed its uptrend just like Scenario A has indicated. Notice that the Bollinger Bands and the MACD signals are almost identical between the real KLCI movement (Chart B) and the simulated (Chart A); and that is why investors have to be aware of the behavior of price trend for the KLCI as well as individual, for the similar analysis approach can be applied on individual stocks as well. This week, let us look at a few more examples of how to catch these signals.

IRCB

(Chart 1) IRCB , chart from 16/07/2009 to 11/11/2009.

As indicated by A, the Bollinger Bands of IRCB contracted for about 1 week, and price are consolidating, while preparing for a new movement. And the direction of a new movement shall only be revealed once the Bollinger Bands re-expands.

Although the Bollinger Bands has not expanding, the MACD histogram is actually rising gradually, forming a Rounding bottom, showing some signs of improvement. However, this has to be confirmed with the re-expansion of the Bollinger Bands.

If the Bollinger Bands should re-expand with price of IRCB above the Bollinger Middle Band, it would be a bullish signal. Then, the Bollinger Middle Band shall serve as the dynamic support for the bullish movement as well as the trailing stop reference. Technically speaking, the bullish signal is best to confirm with the increase of volume, as circled at C. Support for IRCB is found at RM0.55 while the Resistance are at RM0.85 and RM0.97 level.

Financial Summary As at 31/7/2009.

4 Q Rolling PER）	36.92 times	Dividend Yield	0.00%
Dividend		Dividend Yield	Net Profit Ratio
31/01/2009	0 sen	0.00%	-3.83%
31/01/2008	0 sen	0.00%	-16.09%
31/01/2007	0 sen	0.00%	-5.36%
31/01/2006	0 sen	0.00%	0.15%
31/01/2005	1.5 sen	3.49%	11.49%

Table 1: IRCB Financial Summary.

Muhibah

(Chart 2) Muhibah, chart from 16/07/2009 to 11/11/2009.

As shown on chart 2, price of Muhibah was trending down since July, but it rebounded after touching RM 1.12 level. Despite the rebound, it has not broken away from the bearish biased movement and consolidated since then. And the contraction of the Bollinger Bands confirm the consolidation signal.

As indicated by A, the Bollinger Bands is now narrowing suggesting that the consolidation is coming to an end, and a new movement is about to begin. Of course, we have to see the re-expansion of the Bollinger Bands to be able to confirm the beginning of a new movement.

As circled at B, the MACD is forming a Rounding Bottom, suggesting that the short term movement has been improving gradually. This is usually an early positive signal, and investors could be prepared for the expansion of the Bollinger Bands.

If the Bollinger Bands should expands with the price of Muhibah above the Bollinger Middle Band, it would be a bullish signal and Bollinger Middle Band shall serve as the dynamic support as well as the trailing stop reference. If the bullish Bollinger Bands signal could confirmed with the increased of volume (as indicated by C), it is likely to give strength to the signal. Resistance for Muhibah is at RM 1.25 followed by RM 1.33 level.

In contrary, if the Bollinger Bands should re-expand with the price of Muhibah below the Bollinger Middle Band, it would be a bearish biased signal. If price should break below the RM 1.12 support, it would be making a new low, thus investors should consider cutting loss.

Financial Summary as at 30/6/200:

4 Q Rolling PER）	44.15 times	Dividend Yield	2.14%
Dividend		Dividend Yield	Net Profit Ratio
31/12/2008	2.5 sen	3.03%	1.02%
31/12/2007	4.5 sen	1.50%	4.94%
31/12/2006	7.5 sen	2.82%	3.06%
31/12/2005	4.0 sen	5.63%	2.68%
31/12/2004	3.0 sen	3.39%	0.79%

Table 2: Financial Summary of Muhibah.

Gamuda

(Chart 3): Gamuda, chart from 16/07/2009 to 11/11/2009.

As indicated by A, the contracted, as the price of Gamuda stopped falling and went into a consolidation; but price of Gamuda remains below the Bollinger Middle Band. This suggests that despite the consolidation, the immediate outlook for Gamuda remains bearish biased. If the Bollinger Bands should expands with price breaking above the Bollinger Middle Band, there is a chance that Gamuda might pickup some strength.

As circled at B, the MACD histogram also formed a Rounding Bottom. This is a signal suggesting that the price has stopped falling, and a signal of some improvement, or even a chance to regain some strength. If the MACD histogram could continue rising and break above the zero level. The improvement is likely to carry on. Nonetheless, the MACD histogram is a Secondary indicator, and its signal has to be confirmed with the Bollinger Bands signal.

If the Bollinger Bands should re-expand, with price above the Bollinger Middle Band, there is a chance of a reversal for Gamuda, and the next resistance is at RM 3.30 level. Technically speaking, if volume should also increase, it would strengthen the bullish signal of the Bollinger Bands, and the Bollinger Middle Band shall serve as the dynamic support as well as the trailing stop reference. (Study C)

On the other hand, if the Bollinger Bands should expand with price below the Bollinger Middle Band, it would be a bearish biased signal for Gamuda, suggesting price might continue its downtrend. If price should break below the RM3.00 support, it would be a new low, thus investors should consider cut loss.

Financial Summary as at 31/7/2009:

4 Q Rolling PER）	32.12 times	Dividend Yield	2.58%
Dividend		Dividend Yield	Net Profit Ratio
31/07/2009	8 sen	2.48%	7.10%
31/07/2008	25 sen	10.92%	13.52%
31/07/2007	46 sen	5.90%	12.23%
31/07/2006	16 sen	4.57%	13.74%
31/07/2005	16 sen	3.48%	17.26%

Table 3: Financial Summary of Gamuda.

Conclusion:
Last week, the KLCI reacted similarly as the bullish scenario mentioned earlier, and the same approach of analysis can be applied to individual stocks. In short, understanding the reversal pattern can help investors in preparing and planing for their trading plan.

Monday, November 16, 2009

Secondary Indicator combining with Primary Indicator.

It is common to see conflicts of signal between long term and short term indicators. For example, a long term indicator, maybe Moving Average, is still showing an uptrend, but the Stochastic is showing a short term weakening signal.

How should one make decision when there is a conflict of signal? Should investors react to the short term indicator signal or should they stick with the long term signal? In reality, there are many short term movement in a long term trend, and every short term correction could means a short term correction, or mark an end to the long term uptrend.

This is the idea mentioned in the Dow Theory, in which a major wave should have minor ripples, which reflect to the short term corrections during a long term trend. The difference between long term and short term signals are actually not conflicting, but rather a natural characteristic of trend. Therefore, investors must differentiate the importance of Primary and Secondary indicators, and apply them by understanding the long term and short term movement signals, then making their investment plan of buying, selling, or topping up.

Chart 1: E&O – 3417, chart from 21/1/2009 to 4/11/2009.

As shown on chart 1, during the uptrend of E&O, there were many short term corrections, but price managed to resume its uptrend after these correction, thus, forming an long term uptrend. As indicated by box A, and box B, some early reversal signal can be spotted by using short term indicator like the Stochastic. However, it is important not to react to the Stochastic signal too quickly for investor might be buying too early or taking profit too early, and missing the potential of long term uptrend. Study Chart 2 and Chart 3 for details.

Box A:

Chart 2: E&O, chart from 20/1/2009 to 23/3/2009 (Taken from Chart 1 Box A)

Indication	Remarks
A	With the Stochastic below 30% level, it showed a short term bearish signal, thus not suitable for buying.
B	Despite the weakening short term signal, the Bollinger Bands was contracting, suggesting that price was consolidating while preparing for a new movement. Therefore, it would reveal its new movement once the Bollinger Bands re-expands. Meanwhile, when the Bollinger Bands is contracting, Secondary indicators signal (for example the MACD, Stochastic, RSI etc) can be over sensitive, and therefore, it is important to always confirm these signals with Primary indicators, such as the Bollinger Bands and the Moving Average.
C	The Bollinger Bands re-expanded, with price above the Bollinger Middle Band, thus showing a bullish biased signal. At the same time, the Stochastic also break above 30% level, breaking away from the short term bearish region, suggesting an improvement short term movement.

Box B:

Chart 3: E&O, from 3/9/2009 to 4/11/2009. (Taken from Box B)

Indication	Remarks
A	The Stochastic broke below 70% level, suggesting an end to the short term bullish signal. It also mean a beginning of a technical correction. However, the Bollinger Bands was contracting, and therefore, it has not confirmed the weakening signal of the Stochastic. But, with the Stochastic giving an early warning signal, at least investors could mentally prepare, or plan for a technical correction, or even a risk of a bearish reversal.
B	The Bollinger Bands re-expanded with price staying below the Bollinger Middle Band, and therefore, confirming a negative movement signal.
C	The Stochastic returned to above 70% level, giving yet another short term bullish signal, while the Bollinger Bands was still contracting, thus it has not confirmed the short term bullish signal.
D	The Bollinger Bands contracts, giving no confirmation to the short term bullish signal of the Stochastic.
E	The Bollinger Bands re-expands, with price below the Bollinger Middle Band, and at the same time, the Stochastic also broke below 30% level, entering the short term bearish region. Therefore, both the Stochastic as well as the Bollinger Bands are showing bearish signal.

Chart 4: E&O Long term uptrend chart with 14, 21, 31 EMA.

As shown on Chart 4, when price of E&O is forming an uptrend, investors can apply the 14, 21, 31 EMA as the uptrend dynamic support as well as the trailing stop reference. Generally, for investors who had bought the stock in this uptrend, and when price has risen, investors should pay attention to the short term correction signal, but should not react too quickly by selling their positions. This is because as long as the price is still supported by the 14, 21, 31 EAM, the uptrend is still intact, and there could be more upside potential. Until the price should break below the rising EMA, it suggests that the uptrend has ended.

This week's Case Studies:

Chart 5: Zelan – 2283, chart from 8/6/2009 to 5/11/2009.

As indicated by A, the Bollinger Bands of Zelan contracted 10%, suggesting that price is consolidating while preparing for a new movement. When the Bollinger Bands should re-expands, and if price should stay above the Bollinger Bands, it would be a bullish signal, and the Bollinger Middle Band shall serve as the dynamic support for the upside movement. On the other hand, when the Bollinger Bands re-expands with price below the Bollinger Middle Band, it would be a bearish signal.

As indicated by B, the Stochastic is still staying around 50% level, suggesting that the short term movement of Zelan is still trendless. Generally, the Stochastic has to break above 70% and remain above 70% level to give a short term bullish signal. If the Stochastic should break below 30% level, it would be a short term bearish signal.

If the Bollinger Bands should show a bullish signal, the most ideal situation would be a substantial increased of volume to confirm such bullish signal. Because the increase of volume suggests more inflow of fresh capital to absorb the selling pressure. This is likely to help sustaining the uptrend. Resistance for Zelan is at RM0.95 and RM 0.99 WinChart Automatic Fibonacci Retracement while the support is at RM 0.86 WinChart Automatic Fibonacci Retracement.

Chart 6: SPSETIA – 8664, chart from 14/07/2009 to 5/11/2009.

As indicated by A, Bollinger Bands of Spsetia contracted 14%, suggesting that price is consolidating, while preparing for a new movement. If the Bollinger Bands should re-expand, it would be an end to the consolidation and a beginning of a new movement, and the direction of the new movement is determined by the relative position of price above or below the Bollinger Middle Band.

In other words, when the Bollinger Bands re-expands, with price above the Bollinger Middle Band, it would be a bullish signal, and the Bollinger Middle Band shall serve as the dynamic support as well as the trailing stop reference; and the best confirmation would be a substantial increased of volume. (Study C). On the other hand, when the Bollinger Bands re-expands with price below the Bollinger Middle Band, it would be a bearish signal.

If investor would like to be prepare slightly earlier, they can observe the chances of the Stochastic. As indicated by B, the Stochastic is now in 50% level. If the Stochastic should break above 70% level, it would be an early signal suggesting that the price is gaining strength, while entering the short term bullish movement. On the other hand, if the Stochastic should break below 30% level, it would be a short term bearish signal. Resistance for Spsetia is at RM 4.00 while the support is seen at RM 3.77 WinChart Automatic Fibonacci Retracement.

Conclusion:
By fully understanding the relationship between long term and short term movement and indicators meaning, these signal should be complimenting rather than conflicting. Although there is no 100% sure of indicator signal, it is still very helpful for investors to be prepare for the possible out comes by getting a feel of the changes of long term and short term movement, thus able to react on time according to the changes of trend.

Catching reversal with Bollinger Bands and MACD histogram.

The Dow Jones Industrial Average had its correction due to slower properties sales and high unemployment rate, coupled with the widening deficit of Japan, the stock market across the globe had a correction. Of course, the KLCI also broke below the Bollinger Middle Band as well as the 1248 WinChart Automatic Fibonacci Retracement, and might have a risk of a reversal. This week, we shall take a look at how analysts find reversal signals.

Chart 1: The KLCI chart from 13/7/2009 to 4/11/2009.

As shown on chart 1, after breaking below the 1248 WinChart Automatic Fibonacci Retracement as well as the Bollinger Middle Band the KLCI started to rebound, and testing the 1248 WinChart Automatic Fibonacci Retracement and the Bollinger Middle Band. Meanwhile, the Bollinger Bands is also contracting, suggesting that the KLCI is preparing for a new trend, and this is important signal to monitor.

Generally, when the KLCI is preparing for a new movement, it is time for investors to get ready, and plan for the possible outcome. We had prepared two scenario of possible outcome for the KLCI, (Study Chart 2 and Chart 3) for your study.

Chart 2: The ideal scenario for the KLCI.

As shown on chart 2, if the KLCI (or stock price) should rebound and break above the Bollinger Middle Band, and combine with the uptick of the MACD histogram, it would be a reversal signal, and the KLCI could break away from the negative movement and maybe a chance to regain its strength. Technically speaking, this is the most ideal scenario for the KLCI.

Chart 3: Typical down side signal for the KLCI.

If the KLCI should be resisted by the Bollinger Middle Band as shown on chart 3, together with the MACD histogram falling, the KLCI would form a downtrend.

The above chart 2 and 3 analysis can also apply to individual counters, and it is important to remember that when stock reverse up, the best confirmation would be a significant increased of volume. However, volume does not need to increased to confirm a bearish reversal.

Recent Bullish Reversal Example:

Chart 4: Time – 4456，recent movement.

Indication	Remarks
A	When the Bollinger Bands contracts, price of TIME stayed below the Bollinger Middle Band, suggesting the immediate outlook was bearish biased while still consolidating.
B	The MACD histogram started to form a Rounding Bottom. Suggesting that the stock price might be picking up some strength.
C	Bollinger Bands re-expanded, with price of TIME above the Bollinger Middle Band, signaling a bullish biased signal, with the Bollinger Middle Band serving as the dynamic support as well as the tra iling stop reference.
D	Volume also increases as the Bollinger Bands was showing a bullish movement signal.

Recent Bearish reversal example:

Chart 5: Gamuda – 5398.

Indication	Remarks
A	When the Bollinger Bands contracts, price o f Gamuda went into a consolidation stage wit price above the Bollinger Middle Band. The immediate outlook was positive biased, while awaiting for the Bollinger Bands expansion signal to confirm a bullish movement.
B	However, price of Gamuda fell below the Bollinger Middle Band, as the Bollinger Bands re-expanded, thus showing a bearish movement signal.
C	Meanwhile, the MACD histogram also falling, while confirming the negative Bollinger Bands signal.

This week's Case Studies.

Below are the Case Studies for this week, and it is advisable that investors to follow the analysis method mentioned above, to further understand the application of the MACD histogram.

Chart 6: Msport – 5150, chart from 19/8/2009 to 4/11/2009.

As indicated by A, the Bollinger Bands of Msport re-expanded after contracting for about two weeks with price above the Bollinger Middle Band. Therefore, expansion of the Bollinger Bands gives a bullish biased signal. As indicated by B, the MACD histogram also ticking higher, while forming a Rounding Bottom, and confirming thebullish Bollinger Bands signal. As mentioned earlier, the bullish Bollinger Bands signal has to be confirmed with the increased of volume, to strengthen the signal.

As indicated by C, volume of Msport increased significantly, suggesting more inflow of fresh capital. Provided that the Bollinger Bands is still expanding while the price is still above the Bollinger Middle Band, the increased of volume shall be a positive element to the bullish movement. Immediate resistance for Msport is at RM 0.63 WinChart Automatic Fibonacci Retracement while the support is at the Bollinger Middle Band.

Chart 7: AMMB – 1015, chart from 13/07/2009 to 4/11/2009.

As indicated by A, the Bollinger Bands is contracting, with price of AMMB below the Bollinger Middle Band, suggesting a mild bearish biased consolidation. The contraction of the Bollinger Bands also suggests that AMMB is preparing for a new movement, and the direction of the new movement shall only be revealed once the Bollinger Bands re-expands. As indicated by B, the MACD histogram is forming a Rounding Bottom, suggesting that the price of AMMB is picking up some strength.

If the Bollinger Bands should re-expands with price breaking above the Bollinger Middle Band, it would be a bullish signal, coupled with the rising of the MACD histogram. Technically speaking, the best confirmation to this bullish signal would be a substantial increased of volume. (As indicated by C). Immediate resistance for AMMB is seen at RM 4.83.

Conclusion:
When a stock price is about to reverse, investors can apply the above analysis method, by combining the Bollinger Bands (Primary Indicator) with MACD histogram and volume (Secondary Indicators); and with a proper trading plan according to the technical signal.

Application of Primary Indicators.

How to apply Primary Indicators.

Chart pattern and trend lines are definitely the most important aspect of Technical Analysis, followed by Primary Indicators and then Secondary Indicators. The study of chart patterns and primary indicators are usually more accurate, but it can be tricky sometimes, and therefore, sometimes analysts make use of Secondary indicators to reinforce their analysis.

Primary Indicators:
1. Moving Average
2. Bollinger Bands
3. Trading Bands
4. Fibonacci
5. WinChart SRS

Secondary Indicators:
1. Volume

2. MACD
3. WinChart RSI

4. Stochastic

5. DMI
6. Momentum
7. OBV

Other than the above mentioned indicators, there are still countless of technical indicators available in the market. However, we strongly believe that the simplest indicators or method of analysis is still the best. Because, ultimately, it is the apply of analysis that matters, but the complex theory behind it. Further more, many of these technical indicator are having co-linear effect. Therefore, it is important to just master a simple method of analysis.

Bollinger Bands and the Moving Average are widely used Primary Indicators, for they are closely related to the price movement, and as a result, their signals are usually direct, and clear. However, despite both being Primary Indicator, they have different advantages and weakness; the Bollinger Bands is suitable when price is consolidating, so that analysts can monitor the end of a consolidation and a beginning of a new movement. However, the Moving Average is more suitable when applying as a dynamic support of an uptrend, or an dynamic resistance of a downtrend, an as well as a trailing stop method.

We shall take a look at the following case study on Bollinger Bands and the Moving Average.

Airasia - 5099 – Preparing for a new movement.

Chart 1: AirAsia – 5099, chart from 10/06/2009 to 28/10/2009.

As shown on chart 1, price of AirAsia started consolidating in October 2009, and the contraction of the Bollinger Bands also confirmed the consolidation signal. As the Bollinger Bands contracts, the volatility of Airasia also decreases, this suggests that not only the price is consolidating, it is also preparing a new movement, and the direction of the new movement shall only be revealed once the Bollinger Bands re-expands.

Technically speaking, when the volatility of price is low, it is the best time to apply the Bollinger Bands, because when the Bollinger Bands is narrowing, its expansion signal will be much clearer, and firmer. This is an advantage for investors who understand the advantage of the Bollinger Bands.

As indicated by A, the Bollinger Bands re-expanded after consolidating for about 1 month. This suggests that the consolidation of Airasia is ended. However, because price of Airasia is now below the Bollinger Middle Band, the expansion of the Bollinger Bands suggests a bearish movement, and the Bollinger Middle Band shall serve as the immediate dynamic resistance.

The immediate outlook for Airasia is negative biased, and therefore, unless price of Airasia could break above the Bollinger Middle Band in the near future, the bearish biased movement is likely to carry on if the Bollinger Bands should continue to expand. In other words, this is a signal to cut-loss. Support for Airasia is now at RM1.33 and RM 1.27 WinChart Automatic Fibonacci Retracement, while the resistance are found at RM 1.39 and RM 1.46 WinChart Automatic Fibonacci Retracement.

Latest Financial Summary as at 30/6/2009：

Leading PER	4.52 times	Dividend Yield	0.00%
Dividend		Dividend Yield	Net Profit Ratio
31/12/2008	0 sen	0%	-17.87%
31/12/2007	0 sen	0%	28.45%
31/12/2006	0 sen	0%	31.07%
31/12/2005	0 sen	0%	10.25%
31/12/2004	0 sen	0%	12.50%

Table 1: Financial Summary of AirAsia.

As shown on table 1, there were no dividend paid out for the last 5 years, and therefore, AirAsia is not a high yield stock, thus not a suitable counter for dividend income nor long term investors. It is more suitable for position trading.

Axiata – 6888 – Downtrend formation.

Chart 2: Axiata – 6888, chart from 11/06/2009 to 28/10/2009.

As indicated by A, price of Axiata broke below the 14, 21, 31 EMA, but rebounded near the RM 3.00 support level, returning to above the 14, 21, 31 EMA without forming a downtrend. However, as indicated by B, price of Axiata broke below the 14, 21, 31 EMA again on the 22nd of October, 2009, and it also broke below the RM 3.00 WinChart Automatic Fibonacci Retracement; therefore, it forms a downtrend.

Based on this example, it is the best time to apply the 14, 21, 31 EMA. This is because when price is trending, (up or down), the Moving Average can serve as the dynamic support or the dynamic resistance. When price is trending up, the Moving Average can also serve as the Trailing Stop reference. However, when price is trend down, it would be a dynamic resistance, and investors should avoid buying when price is trending below the falling 14, 21, 31 EMA.

As shown on the chart above, the characteristic of a downtrend is that price constantly staying below the falling 14, 21, 31 EMA. If price should rebound, but failed to break above the falling 14, 21, 31 EMA, the downtrend is likely to continue.

In short, as long as the price is still resisted by the 14, 21, 31 EMA, the downtrend remains intact, and investors should not attempt to buy, because this is buying against the downtrend. Nevertheless, support for Axiata is at RM 2.83 WinChart Automatic Fibonacci Retracement while the resistance is at RM 3.00 followed by the 14, 21, 31 EMA.

Latest Financial Summary as at 30/6/2009：

Leading PER	16.22 times	Dividend Yield	0.00%
Dividend		Dividend Yield	Net Profit Ratio
31/12/2008	0 sen	0.00%	4.39%

Table 2: Financial Summary of Axiata.

Conclusion:
The Bollinger Bands and the Moving Average are both important Primary Indicator but both has its advantages and weakness. The Bollinger Bands is best used during a consolidation, to find out the beginning of a new movement, while the Moving Average is best used in a trending movement, as a dynamic support or dynamic resistance. It is crucial that investors to fully understand the usage between the Bollinger Bands and the Moving Average.

Identifying Support and Resistance using Fibonacci Retracement.

Generally, investors who understand Technical Analysis are familiar with Fibonacci and the Golden Section Number, which is an important indicator to identify support and resistance levels.

Fibonacci Retracement is a series of logical Golden section number: 23.6%, 38.2%, 50%, 61.8%, 76.4%, 161.8%, etc. By determining the important highest and lowest points, the above Fibonacci Retracement will display important support and resistance levels.

Since the accuracy of Fibonacci is highly reputable, and it is being widely used. We will take a look at the Fibonacci retracement this week on the KLCI analysis as well as some case studies.

Chart 1: KLCI Weekly Fibonacci Retracement.

The above chart is the KLCI chart for almost 2 years, with its highest 1524.69 and its lowest 801.27 in October 2008. By applying the Fibonacci retracement, it shows that the Support and Resistance levels as follow:

Retracement:	KLCI	Remarks
23.60%	972.00	The KLCI broke above this resistance level in April, 2009, entering a bullish market.
38.2%	1077.62	The KLCI was resisted by this level in May, 2009, and consolidated for a1 and a half month before, breaking new high, to resume its bullish trend.
50%	1162.98	The KLCI broke above this level in the end of July, 2009, and this has became an important support since.
61.8%	1248.34	The KLCI broke above this level on the 15th of October, 2009, however, due to the correction of markets across the globe, the KLCI failed to stay above this level, and current, the 1248 level is now the resistance for the KLCI (Study Chart 2 analysis for details)
76.4%	1353.96	Another important resistance for the KLCI.

Table 1: KLCI Fibonacci Retracement levels from 2008 to current.

Chart 2: KLCI recent uptrend with Fibonacci.

As shown on chart 2, other than the 61.8% retracement line (1248 pts), the T1 long term uptrend line is also an important support for the KLCI. As indicated by A, the T1 line and the 1248 fibonacci over-laps, which from technical point of view, suggesting a stronger support. However, due to the negative performance of markets abroad, the KLCI failed to maintain above these supports, breaking below the 1248 WinChart Automatic Fibonacci Retracement, showing sign of a weakening trend.

Meanwhile, as indicated by B, the Bollinger Bands expanded with the KLCI below the Bollinger Middle Band, which suggests a bearish biased signal. If the Bollinger Bands should continue to expand with the KLCI below the Bollinger Middle Band, the bearish biased movement is expected to continue. And the next support for the KLCI is at 1220 WinChart Automatic Fibonacci Retracement (23.6% retracement of 1058 to 1270). In other words, the KLCI has to break above the Bollinger Middle Band to avoid more downside risk.

Case Study:

Chart 3: IJMLAND – 5215, chart from 16/06/2009 to 29/10/2009.

As shown on chart 3, price of IJMLand rose from its low in June (RM 1.27) to its highest of RM 2.68 in October, 2009, and then followed by a technical correction. However, after the technical correction, price of IJMLAND managed to be supported by the RM 2.35 level. Which is the 23.6% retracement.

If price should rebound from RM 2.35 level, and break above the 14, 21, 31 EMA, it would be an end to the technical correction, and a chance to resume its uptrend. The next resistance shall be at RM 2.68 level. If volume should increased substantially, it would confirmed this bullish signal, and investors can apply the 14, 21, 31 EMA as the dynamic support as well as trailing stop reference.

On the other hand, if price should break below RM 2.35 level, it would suggests a bearish movement, while the 14, 21, 31 EMA will be serving as the dynamic resistance of the downtrend. Next support will be found at RM 2.14 level (38.2% retracement), which is around 10% downside room. In other words, if price should break below RM 2.35 fibonacci, it would be a signal to cut loss.

Latest Financial Summary as at 30/6/2009:

4 Q Rolling PER	35.55 times	Dividend Yield	0.00%
Dividend		Dividend Yield	Net Profit Ratio
31/03/2009	1.5 sen	0.00%	7.62%
31/03/2008	4 sen	0.00%	14.13%
31/03/2007	5 sen	0.00%	-2.76%
30/06/2006	5 sen	0.00%	9.07%
30/06/2005	3 sen	0.00%	9.56%

Table 2: IJMLand Financial Summary.

Chart 4: GENM – 4715, chart from 26/02/2009 to 29/10/2009.

As shown on chart 4, price of GENM was supported at the RM 2.74 (23.6% Fibonacci Retracement) during its consolidation, which is a golden section number based on the lowest of RM 1.84 in March, and the highest RM 3.02 in July, 2009. As indicated by A, price of GENM rebounded many times on the RM 2.74 level, suggesting that investors has grown accustomed to this level, or it suggests that the memory of investors is stronger at this level. Therefore, RM2.74 is going to be an important support level.

Meanwhile, T1 on Chart 4 is a descending trend line from its highest level, suggesting that price of GENM is consolidating while still supported by RM 2.74. Therefore, it forms a Triangle pattern. The fluctuation of price within the T1 line and the RM 2.74 support level is getting small, thus suggesting that it is preparing for a new movement.

If price should break above the T1 descending trend line, there is a good chance that price is breaking away from this consolidation, and maybe forming an uptrend, by then, investors can apply the 14, 21, 31 EMA as the dynamic support as well as the trailing stop reference. On the other hand, if price should break below the RM 2.74 support level, this is a risk of a downtrend formation, thus a signal to cut loss, and the next support level is seen at the RM 2.57 level (38.2% Retracement).

Latest Financial Summary as at 30/6/2009:

4 Q Rolling PER	28.53 time	Dividend Yield	2.51%
Dividend		Dividend Yield	Net Profit Ratio
31/12/2008	7.00 sen	3.13%	12.98%
31/12/2007	6.48 sen	1.71%	35.74%
31/12/2006	27.00 sen	1.86%	24.84%
31/12/2005	24.00 sen	2.14%	26.80%
31/12/2004	20.00 sen	2.00%	26.54%

Table 3: GENM Financial Summary.

Conclusion:
Technical analysts use Fibonacci Retracement to calculate the Retracement target of price after a rally, or the rebound target after a decline, and the idea of Fibonacci Retracement is also widely accepted by investors, and it is based on the highest and lowest range of a rally or a decline. Originally, the Golden Section number series is derived from nature's law, but when applied on to technical analysis, its accuracy is highly remarkable. The above study examples showed that if applied properly, investors could have an idea of the resistance or support level ahead of time, which would help them in planning their trading plan.

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