Bursa Malaysia Technical Analysis & Stock Trading: December 2009

Wednesday, December 16, 2009

Early sign of a reversal.

Lower-high, an early signal of a possible downtrend.

Last week, we mentioned 3 scenarios for the FBM KLCI, while this week, it appears that the KLCI is showing some signs of weakness, and it might be forming a downtrend. Therefore, let us further study some characteristic of a downtrend, so that readers and investors can be well-prepared for the possible outcome.

Chart 1: KLCI forming a Lower-high.

As indicated by A, after touching 1288 peak, the KLCI retreated as a technical correction. However, it was supported by the 1257 level, and rebounded. Still, the KLCI did not return to 1288 level, but instead, forming a lower-high with a peak of 1272 points, as indicated by B. This formation of a lower-high is an early sign of a downtrend formation. However, since the Bollinger Bands has not expanded substantially, and the KLCI is still supported by the 1257 level, it has not confirmed a downtrend formation yet.

If the Bollinger Bands should expand further with the KLCI below the Bollinger Middle Band, and the KLCI should break below 1257 level, it would confirm a downtrend formation, and the 14, 21, 31 EMA shall serve as the dynamic resistance for the KLCI downtrend. In contrary, if the KLCI should break above the Bollinger Middle Band, and break above 1272 level, there is a chance that the uptrend might resume.

The effects of Lower-highs:

Chart 2: The downtrend of the KLCI in 2ndhalf of 2008.

Indication	Remarks
A	KLCI started to retreat after touching its high of 1166 points
B	KLCI breaking its support of 1100 level, making a new low. This means those who managed to buy at the recent lowest points are turning their profits into losses.
C	KLCI rebounded after finding a support at 1063 level, but it has failed to return to its high of A points, but forming a lower-high at 1100 level. This means those investors who bought a point A are making losses, and failed to break even.
D	KLCI breaking below 1063 points, making yet another new low. Those who bought at point A, B, and C, are all making losses.
E	KLCI rebounded at 900 point support, but only managed to reach its 1038 peak, and it started falling again. This means those who bought at points A, B, C, and D are still holding losses, can could not breakeven.
F	KLCI breaking below 900 level, making another new low. This means those who managed to “Buy Low” at the lowest points of 900, are also making losses.
G	KLCI rebounded from 930 level, but only can reach 970 peak, while those who bought at points A, B, C, D, E, and F, are all still holding losses.
H	KLCI breaking its lowest support again, another new low

As illustrated in Chart 2, whenever the KLCI formed a downtrend, there are some short term investors who managed to buy at a dip, and sold at a short term peak to make quick profit. However, when these investors took profit, their stocks have to be transferred to other investors, and therefore, other investors are taking the losses. In short, at any given moment, there will be share holders making losses when the market falls.

Investors buy shares for only 1 reason, which is a hope to make profit. However, when share price started falling, and until a certain extend, the loss become too huge to bare, and therefore, these investors will have a strong memory of the price in which they paid to enter the market. That is their break-even level, thus it will be a resistance level, and the selling pressure is guaranteed. Therefore, the sharper and the longer the downtrend, the more selling pressure are being accumulated. In other words, a downtrend is a fear-dominated market where more people wanting to break even.

Of course, opportunities lied in every downtrend, but to be successful in trading, one must have a sound and careful trading plan, and only buy when the trend reverses, not when the price is cheap. And most importantly, never holding a losing stock stubbornly, and becoming an involuntary “Long term investor”.

Chart 3: KLCI 2008 downtrend.

As shown on chart 3, the downtrend of the KLCI in 2008 is clearly characterized with Lower-highs and new-lows. The KLCI lost over 730 points in this downtrend.

Some investors may be wondering, if this current downtrend should be a temporary one, and when the market finally resumes its uptrend, he or she might have missed it again. But the important matter is the consideration of Risk and Reward. Nevertheless, if investors should know how to follow the trend, there is no need to worry about missing any trend.

This week's Case Study - AMMB

Chart 4: AMMB, chart from 16/09/2009 to 9/12/2009.

As indicated by A, price of AMMB retreated after hitting its peak of RM5.32 on the 17thof November. However, it was supported by the 14, 21, 31 EMA and price rebounded again and resumed its uptrend. However, as indicated by B, price of AMMB failed to reach the same peak as A, but instead, forming a lower-high at RM5.06 level.

Based on the analysis of AMMB, a lower-high formation is an early signal suggesting that it might be forming a downtrend. If price should break below RM 4.80 level, it would means the end of the uptrend, and the beginning of a downtrend. Thus a signal to take profit or cut-loss.

In contrary, if price should break out above RM5.06 level, with substantial volume, it would be a signal of the uptrend resumed. If investors were to buy based on this signal, then the 14, 21, 31 EMA shall serve as the dynamic support as well as the trailing stop reference.

Rolling 4 Q PE	14.59 times	Dividend Yield	1.64%
Dividend		Dividend Yield	Net Profit Ratio
31/3/2009	8 sen	2.55%	14.69%
31/3/2008	6 sen	1.56%	11.13%
31/3/2007	5 sen	1.33%	1.33%
31/3/2006	5 sen	1.77%	1.77%
31/3/2005	4 sen	1.42%	0.99%

Table 1: AMMB yearly dividend yield, dividend, and Net Profit Ratio.

Conclusion:
There are some characteristics of a downtrend, and other than the above mentioned Lower-highs, investors can also apply the Bollinger Bands as a confirmation. No one is sure how long will a downtrend last, but whether it is a long term or short term downtrend, a smart investor would always avoid unnecessary risk, and avoid buying cheap stocks during a downtrend.

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How to pick stock during a reversal?

The KLCI is currently still having its correction. Based on the chart reading, the KLCI is still preparing for a new movement. Previously, we mentioned a two possible outcome for the KLCI, and these two scenarios share are similarity, which is the KLCI would have to break below the L1 line for a certain time frame and 'distance' before one could determine the new movement.
Possible 1:

Chart 1: KLCI chart from 14/1/2009 to 29/9/2009

Possible 2:

Chart 2: KLCI chart from 11/6/1996 to 12/1/1998.

Chart 3: KLCI chart from 14/8/2009 to 10/12/2009.

As shown on Chart 3, we shall notice that both chart 1 and chart 2, when the KLCI has just broken below the the uptrend, are quite similar. This is quite typical for a breakout of an uptrend, and this is why technical analysis needs to study the history of chart to find out the repetition of behavior.

As indicated by A, the KLCI rebounded by resisted by the L1 line, it means that the KLCI has to break above the L1 line to resume its uptrend. Meanwhile, the KLCI failed to break above the Bollinger Middle Band, and when the Bollinger Bands expanded last week, the KLCI ended lower, and the downside biased movement is likely to carry on until the Bollinger Bands contracts again.

As indicated by B, the KLCI is supported by the 1257 WinChart Automatic Fibonacci Retracement, (23.6% retracement) Therefore, the KLCI has not formed a confirmed downtrend yet. In other words, this is still an early sign of a possible downtrend formation.

The effect of a weak broad market:

Chart 4: Maybank, from 3/9/2009 to 10/12/2009

As shown on chart above, the chart of Maybank and theKLCI is rather resembling. Due the sudden fear of the Dubai incident, the downside movement has an early effect, and price of many stocks ended lower. Also, the downside gap will be filled up, usually.

In other words, Maybank and KLCI chart has started its negative movement, as ignited by the fear of Dubai debt worries. Meanwhile, the trend for Maybank is likely to be in parallel with the KLCI's, and as long as the price is still below the Bollinger Middle Band, the immediate outlook is still on the negative side. Supports for Maybank are found at RM 6.7 (50% retracement), RM 6.60 (61.8% Retracement )and RM 6.50 (76.4% retracement), while the resistance is at RM 6.80 (38.2% retracement)

How to pick stock:

While the KLCI is having a risk of forming a downtrend, a short term risk taker may pick up some stock for short term trading. However, the risk associated with short term trading, especially with the KLCI weakening is usually high. Therefore, a careful trading plan has to be in place before any attempt for short term trading, a trailing stop method.

Types of Trailing Stop method: (1) Fixed Price Retreat Trailing Stop. (2) Dynamic Trailing Stop. (3) Yesterday's Low Trailing Stop.

Yesterday's Low Trailing Stop method is suitable for short term high risk type of stock. The idea is simple, that a short term rally should not have its price breaking below its yesterday's low, and the difference between one's entry cost and yesterday's low should be the maximum loss. When price rallied, traders should lift the trailing stop level using the latest's yesterday's low. When price should break below yesterday's low, it would be a signal to take profit, or to cut-loss.

Below are some case studies:

Chart 5: Faber, from 28/9/2009 to 28/12/2009.

After resisted at RM 1.51 (13/11/2009), price of Faber retreated as a form of technical correction, and even breaking below the Bollinger Middle Band. However, as indicated by A, price returned to above the Bollinger Middle Band, with the Bollinger Bands expanded, thus giving a bullish signal. When price advanced with the bullish Bollinger Bands signal, it broke above the RM 1.51 resistance as well.

Chart 6: Gadang, from 15/09/2009 to 9/12/2009.

The technical signal of Gadang in Chart 6 is similar to Faber in Chart 5. As indicated by A, price break above the Bollinger Middle Band and the Bollinger Bands re-expanded with price above the Bollinger Middle Band, thus giving a bullish signal.

Chart 7: Time, from 15/09/2009 to 10/12/2009.

As indicated by A, the Bollinger Bands of Time is contracting, suggesting that it is consolidating while preparing for a new movement. If price should break above the Bollinger Middle Band with the Bollinger Bands expanding, it would be a bullish signal. If trader should follow the Bollinger Bands bullish signal as a buy signal, then a Yesterday's low trailing stop method should be applied.

Conclusion:

While the KLCI is having a risk of forming a downtrend, investors could choose to invest for the short term, provided with a sound trading plan, especially a cut-loss plan. Nevertheless, the risk of trading against the broad market trend is still high, and therefore, when things do not work out, it is always a good idea to cut-loss.

Simulated Scenario of the KLCI.

With the negative impact of the Dubai incident, markets across the globe reacted negatively to it, and so as the KLCI. In fact, the KLCI breaks below the L1 uptrend line. This suggests that the L1 uptrend is being violated, and even a risk of forming a downtrend. Therefore, many individual counters outlook will be affected as well.

Even though the KLCI has broken below the L1 uptrend line, it is still too soon to call for a downtrend. Let's us study the 3 possible scenarios for the KLCI, so that investors can be prepared, and re-act calmly according to their trading plan.

Chart 1: KLCI chart from 10/8/2009 to 2/12/2009

As indicated by A, the KLCI was pulled down by negative performance of the world markets, breaking below the L1 uptrend line. Currently, we are monitoring if the KLCI could resume the L1 uptrend line, or the uptrend is already over? We shall take a look of the 3 simulated charts of the KLCI below.

KLCI to form a Downtrend:

Chart 2: KLCI simulated Lower-High, downtrend.

As shown on chart 2, if the KLCI should failed to break above the 1280 ~ 1288 resistance, and even formed a Lower-higher, as indicated by B, it would be a first signal that the L2 downtrend is formed. If price should later break below the latest 1250 support, as indicated by C, it would confirm the formation of a downtrend, using point A and point B. Provided that the KLCI is staying below the L2 line, the downtrend remains intact. Meanwhile, a typical characteristic of a downtrend is a lower volume below the 40-day VMA level.

KLCI to form a Double Top:

Chart 3: KLCI simulated Double Top.

As indicated by A on chart 3, if the KLCI should test the 1280 ~ 1288 resistance, and resisted again, there is a chance of forming a Double Top. A Double Top is a reversal signal, suggesting investors are breaking-even at the previous resistance line, and the selling pressure is quite strong that the buying interest failed to push the price above the previous resistance. If price should retreat and break the support level at B (1250 level), the KLCI would form a downtrend.

KLCI to resume its uptrend:

Chart 4: KLCI simulated resuming its uptrend.

As shown in chart 4, the arrow B indicates that the KLCI breaks above the L1 line and even breaking above the previous 1288 resistance at A, thus resuming its uptrend. However, the bullish break out of the KLCI has to be confirmed with significant increased of volume, or else, the bullish break out is less affirm. Nevertheless, if the KLCI could break above 1288, the next resistance for the KLCI is seen at 1300 level, and the 14, 21, 31 EMA shall resume its role as a dynamic support.

This week's Case Study: CIMB

Chart 5: CIMB 1023, chart from 7/8/2009 to 2/12/2009.

As shown on chart 5, price of CIMB retreated as the KLCI dipped. However, it is still supported by the 14, 21, 31 EMA, which has been supporting its uptrend for quite some time. This shows that the uptrend is still intact, while not affected by the negative news over the concern of the Dubai incident. Nevertheless, since CIMB is a KLCI component stock, its movement is closely related with the KLCI movement. Therefore, analysis of CIMB must be referred to the analysis of the KLCI.

With the uptrend of CIMB remains intact, investors who are still holding CIMB should follow their trading plan, and use the dynamic trailing stop method. In short, provided that the price of CIMB is still above the 31 EMA, it is still a good idea to hold. Unless investors should feel very uncomfortable, a partial profit taking is also a wise move. However, for those who are prospecting a buy signal, there is no buy signal for CIMB yet for the Bollinger Bands is still contracting. Unless the Bollinger Bands re-expands with the price of CIMB above the Bollinger Middle Band, then only it is a buy signal, with the Bollinger Middle Band as the immediate cut-loss point.

Nevertheless, support for CIMB is seen at RM 12.65 WinChart Automatic Fibonacci Retracement while the next support is at RM 12.10. Resistance for CIMB is at RM 13.48 WinChart Automatic Fibonacci Retracement.

Rolling 4 Q PE	16.99 times	Dividend Yield	1.94%
Dividend		Dividend Yield	Net Profit Ratio
31/12/2008	25 sen	3.85%	25.22%
31/12/2007	25 sen	2.40%	31.00%
31/12/2006	15 sen	1.90%	23.53%
31/12/2005	15 sen	2.73%	17.51%
31/12/2004	15 sen	3.19%	18.01%

Table 1: CIMB yearly Dividend, Dividend yield, and Net Profit Ratio.

Conclusion:
From the above 3 simulated scenarios, investors will have a better idea of what to look forward to, and the different characteristics as well as criteria of each outcome. Therefore, a wise investor who are still holding shares should plan ahead of the outcome, and practice a sound trailing stop method. As for investor who are looking for buy signals, must wait patiently for the signals and never buy too early. Once entered a position, a trailing stop method shall be in place to protect against major reversal.

Breaking and Resuming uptrend?

(Chart 1) KLCI chart from 28/7/2009 to 25/11/2009

Last week, we mentioned that the KLCI was supported by the L1 uptrend line which started from August this year, and as a result, the L1 uptrend line has become a general guide line for most investors.

(Chart 2) KLCI chart from 10/8/2009 to 03/12/2009

However, as the KLCI tests the L1 support line, it is a crucial moment, for if the KLCI should break below the L1 line, it suggests that the L1 uptrend is no longer valid and a reversal of trend might form. As indicated by A, the KLCI was shaken by the negative news about Dubai, while markets across the globe was also affected, as a result, the KLCI fell below the L1 uptrend line.

Actually, before the KLCI breaks the L1 uptrend line, it has stayed below the Bollinger Middle Band, but since the Bollinger Bands was contracting, it has not shown a downtrend formation yet. With the incident from Dubai, the Bollinger Bands expanded and the KLCI ended lower.

Generally, sudden news happen regularly, and during the contraction of the Bollinger Bands, it implies that the KLCI could move either way, and the negative news did actually shorten the consolidation of the KLCI. As shown by A, the KLCI tested the L1 line before it breaks below it. Technically, a downside break down of the L1 suggests and end of the uptrend, and there is a risk of a downtrend formation.

Let us now take a look at what are the possibilities for the KLCI, so that investors can be prepared for the outcome.

Possible 1:

(Chart 3) KLCI chart from 14/1/2009 to 29/09/2009

As indicated by A, the KLCI fell below the L1 few month ago, ended roughly 6% lower and formed a Symmetrical Triangle consolidation pattern. However, the KLCI managed to resume its upward momentum, breaking above its resistance and resume its uptrend movement, gaining another 20% or so. This is a kind of typical example of the KLCI resuming an uptrend after breaking below a previous one.

Possible 2:

(Chart 4) KLCI chart from 11/6/1996 to 12/1/1998

As indicated by A on chart 4, the KLCI broke below the uptrend line, and formed Lower-highs, thus forming a downtrend. All during this downtrend, the KLCI has failed to break above the downtrend line, and the downtrend continued for 18 months, losing about 80%. Therefore, it is important to know that all bear trends begin with a break down of a previous uptrend. Investors could do nothing but to cut-loss.

Examples of Resuming an uptrend:

(Chart 5) AMMB 1015, chart from 23/8/2006 to 31/7/2007

As shown on chart 5, price of AMMB formed an uptrend in August of 2006, with the T1 line being the uptrend line. As indicated by A, price of AMMB broke below the uptrend line during a technical correction, and it successfully returned to above the T1 uptrend after a couple of attempts, and not only that, price of AMMB also broke above the RM 3.80 resistance, with a new high, as indicated by B, and therefore, it resumed its uptrend, and continued the T1 uptrend.

Example of Ending an Uptrend:

(Chart 6) AMMB – 1015, chart from 22/8/2006 to 18/4/2008

As shown on chart 6, price of AMMB broke below the T1 uptrend in August, 2007. Although it attempted to test the T1 uptrend line, it failed to break above, and in fact, it formed a Lower-High as indicated by B, after two months of breaking below the T1 uptrend line. The lower-high was actually a hint that a downtrend might be forming. Nonetheless, price of AMMB later formed a T2 downtrend line, and despite many rebound, price remained resisted by the T2 downtrend line, a bear trend was formed.

Current Case Study for AMMB:

(Chart 7) AMMB 1015, chart from 19/1/2009 to 3/12/2009

As shown on chart 7, there were many corrections in the uptrend of AMMB, (A – July,2009, B – September, 2009, and C-November, 2009), but despite many corrections, price of AMMB remained supported by the T1 uptrend line, and therefore, the uptrend remains intact. If price should remains supported by the T1 uptrend line, there is a chance for AMMB to retest its resistance of RM 5.17 ~ RM 5.30 level. If price should break above the resistance, the uptrend is expected to carry on.

Other than the T1 uptrend line, support for AMMB also found at RM 4.6 ~ RM 4.70 level. If price should break below the T1 uptrend line, it means that the T1 uptrend is no longer valid, and price will consolidate. If price should also break below the RM 4.60 ~ RM 4.70 support, it would be a signal suggesting more downside risk, thus a signal to cut-loss.

44 Q Rolling PER	14.04 times	Dividend Yield	1.60%
Dividend		Dividend Yield	Net Profit Ratio
31/3/2009	8 sen	2.55%	14.69%
31/3/2008	6 sen	1.56%	11.13%
31/3/2007	5 sen	1.33%	-3.38%
31/3/2006	5 sen	1.77%	7.34%
31/3/2005	4 sen	1.42%	4.35%

Table 1: AMMB Yearly dividend, dividend yield, and net profit ratio.

Conclusion:
Last week, we mentioned that the KLCI was preparing for a new movement and stated two possibilities outcomes for the KLCI. The KLCI ended below the L1 uptrend as sparked by the negative news of Dubai. Basically, regardless of the reasons behind, technical analysis signal remains valid. For this week, let us take a look at another two possible outcome for the KLCI, so that investors are well-prepared.

Wednesday, December 2, 2009

Yesterday's Low Trailing Stop Method.

Last two weeks, we mentioned Fixed Price Retreat Trailing Stop and Dynamic Trailing Stop Method, and this week, we shall discuss the next type of Trailing Stop: Yesterday's Low Trailing Stop.

First, let us review the previous two types of Trailing Stop method in brief:

Fixed Price Retreat Trailing Stop, is calculating a Maximum Loss from the latest highest closing price, and as long as the current price is still within the allocated maximum loss, investors shall continue to hold their shares. This method is suitable for low-volatile, strong fundamental, and conservative stocks.

Dynamic Trailing Stop, is using the Bollinger Middle Band or the 14, 21, 31 EMA to track the dynamic support, and as long as the price is still staying above the dynamic support, investors shall continue holding their shares. This is a highly dynamic method, and it is suitable for counters that are in trend.

Yesterday's Low Trailing Stop method, is using yesterday's low as the cut-loss point or profit taking point. It is suitable for counters which has high volatility behavior and usually short term rally. As long as the latest price is higher than yesterday's low, investors should keep their share while riding the short term rally.

Chart 1: Tanamas – 7382, chart from 4/8/2003 to 5/12/2003.

As shown on chart 1, usually rallies of those high volatile stocks are short term, and the rallies are irrational. There are usually not corrections or consolidation in these types of fall, and therefore, it is much harder to analysis with normal trend analysis. Once the correction takes place, it is usually the end of the rally. Therefore, one should have a calm trading plan to trade such counters.

Why Yesterday's Low:

Chart 2: Yesterdays' Low Trailing Stop Method.

Chart 2 is an illustration of a typical short term rally. Assume that Mr. A bought at the candlestick 1, and made some paper profit at the closing, and Mr. A is ready to take profit tomorrow, and what would be his likely asking price to take profit? Most likely at the closing price of yesterday or even higher, or else, his paper profit will be evaporated.

As Mr. A sold his stock to Mr. B, who bought at candlestick 2, and when Mr. B make some profit and ready to take profit on the next day, Mr. B would be asking at a higher price too. This chain effect shall follow through and form candlestick 3 and 4. Meanwhile, as price rise, the amount of greed also increases in the market. This is because no one is experiencing any painful losses yet.

As shown by candlestick 5, price started dropping, and breaking below the low of candlestick 4. This shows that those who bought at candlestick 4 are now making losses instead of profit. Fear begin to rise as investors are suffering from losses. Meanwhile, as investors are making losses, their memory of their breaking even price in grow, thus creating a resistance, or selling pressure. If price should continue falling, (candlestick 6), it means those bargain hunters who bought at candlestick 5 are also losing money, thus adding the emotional of fear into the market, and also increases the selling pressure as more traders wanting to break even.

In short, a strong short term rally shall not have price retreat and break below its yesterday's low. If price should break below its yesterday's low, it is a signal to cut-loss or take profit.

Chart 3: Salcon 8567, chart from 12/12/2005 to 24/1/2006.

As shown on chart 3, if one should bought a A, then the arrow B (its daily low) shall be the immediate cut loss point. When price started to move, the trailing stop level shall be lifted according to C, D, and E level. This way will gradually reduce short term trading risk while retaining some paper profit. As indicated by F, when price break below arrow E, it is a signal to take profit, or to cut loss.

This weeks Case Study:

Chart 4: CONNECT – 0102, chart from 1/9/2009 to 26/11/2009.

As shown on the chart above, price of CCHB rose consecutively for 4 days, and for investors holding this stock, a Yesterday's low Trailing Stop method has to be used to minimize risk. As indicated by A, the lowest price of 26/11/2009 is the current trailing stop level, and by right, during a rally, price should not break below this point. If price should continue its rally the next day, the trailing stop level shall be lifted to the latest lowest price of the next day. This is a method for short term high risk trading, not suitable for conservative investors or long term investors.

Financial Summary as at 30/9/2009：

Leading PER	75 times	Dividend Yield	0%
Dividend		Dividend Yield	Net Profit Ratio
31/12/2008	0 sen	0%	-10.26%
31/12/2007	0 sen	0%	-8.89%
31/12/2006	0 sen	0%	-4.91%
31/12/2005	0 sen	0%	-8.09%

Table 1: CCHB Financial Summary

Conclusion:

Yesterday's low Trailing Stop method is suitable for short term, high volatile rally, this is usually associated with high risk stocks, thus not suitable for long term or conservative investors. Again, it is important to note that trailing stop method can only be lifted with price rally, but can never be adjusted lower when price falls.

Finding Entry point.

Based on the trading concept of “Trend Following”, investors and traders are best to gather signals and information to help him find entry points while following a major trend of the broad market. This week, we shall take a look at the FBM KLCI uptrend chart, and compare to some counters' uptrend chart.

Chart 1: KLCI chart from 28/7/2009 to 25/11/2009.

As shown on chart 1, the L1 uptrend line is the new uptrend line for the KLCI since August, 2009. This is also the uptrend dynamic support for the KLCI. As indicated by A, B, and C, whenever the KLCI rebounded from the L1 uptrend line, the uptrend resumed. Therefore, a rebound near the L1 uptrend provide the best entry timing.

Meanwhile, the current L1 support level is also over-lapping with the 1270 WinChart Automatic Fibonacci Retracement, and therefore, it will be an important support. If the external factors shall remains unchanged, the KLCI might rebound from the L1 line and resume its uptrend.

However, there are two sides to every scenario. When the KLCI is testing the L1 line, it is also a crucial moment, for if the KLCI should break below the L1 line, it would be an end to the current uptrend, and a risk of a downtrend formation.

As indicated by A, on chart 2, when the KLCI form a downtrend, no one would know how long would the downtrend last. In other words, all downtrends started with the KLCI breaking below an existing uptrend line, and every technical correction during an uptrend could be the beginning of a new downtrend. Therefore, it is crucial to only enter the market when the broad market rebound above the uptrend line, not during a correction.

Chart 2: FBM KLCI chart from 11/6//1996 to 12/1/1998.

Case Studies:

Chart 3: AMMB – 1015, chart from 25/3/2009 to 25/11/2009.

Since March this year, AMMB has been staying in its uptrend. As shown on chart 3, despite many technical corrections, price of AMMB remained in its uptrend while supported by the L1 uptrend line, gaining over 180%. Although price has risen almost two times, it is still too early to judge if it has reached its peak. Nonetheless, price of AMMB is now testing the L1 uptrend line, and if price should rebound from the L1 line again, it would be a signal that the uptrend is resuming.

If price should break below the L1 uptrend line, like the one shown in chart 2, then it would be an end to the uptrend and a beginning of a possible downtrend. In other words, it is a signal to take profit or cut-loss. No matter what the out come is, it is important to have both sided scenarios mentally prepared by investors, to construct a sound trading plan.

4 Q Rolling PER	14.68 times	Dividend Yield	1.63%
Dividend		Dividend Yield	Net Profit Ratio
31/3/2009	8 sen	2.55%	14.69%
31/3/2008	6 sen	1.56%	11.13%
31/3/2007	5 sen	1.33%	-3.38%
31/3/2006	5 sen	1.77%	7.34%
31/3/2005	4 sen	1.42%	4.35%

Table 1: Financial Summary of AMMB.

Table 2: Quarterly Financial Summary of AMMB.

Chart 4: KFIMA – 6491, chart from 8/4/2009 to 25/11/2009.

Price of KFIMA has risen over 130% while supported by the L1 uptrend line, as shown on chart 3, despite many corrections, thus forming an uptrend, and the L1 line is the dynamic support. Currently, price of KFIMA is about to test the L1 line again. If it price should rebound from the L1 line together with the KLCI rebounding above its L1 line, it would be a signal suggesting a resume of its uptrend, thus a good timing for buy. However, if price should break below L1 line, it would be a signal suggesting an end to the uptrend, thus a signal to take profit, or to cut loss.

4 Q Rolling PER	4.51 times	Dividend Yield	3.33%
Dividend		Dividend Yield	Net Profit Ratio
31/3/2009	3 sen	4.65%	12.65%
31/3/2008	2.5 sen	5.32%	9.59%
31/3/2007	0 sen	0.00%	10.06%
31/3/2006	2 sen	3.96%	11.48%
31/3/2005	1 sen	2.04%	29.85%

Table 3: KFIMA Financial Summary.

Table 4: KFIMA Quarterly Financial Summary.

Conclusion:
It is always important to include the analysis of the broad market together with the analysis of individual counters. The above examples should both upside and downside scenarios, so that traders and investors are well-prepared for the outcome, and get ready with a sound trading place.

Bursa Malaysia Technical Analysis & Stock Trading