Chart 1: KLCI as at 20/4/2011.
As indicated by A, the FBM KLCI rebounded near the 1513 support on the 20th of April, and now testing the 14, 21, 31 EMA. If the KLCI could successfully break above the 14, 21, 31 EMA, it would likely to form a higher-low, which is a first characteristic of an uptrend formation. Next resistance for the KLCI is at the recent high of 1566 and the historical high of 1577.
Meanwhile, as indicated by B, total market volume remains low despite increasing slightly. Generally, with volume below the 40-day Volume Moving Average, it suggests that the market participation is low, and the inflow of fresh capital is also low. Therefore, the KLCI is less likely to pickup its strength.
This week's case studies:
Axiata – 6888: Testing important support of the year 2011.
Chart 2: Axiata – 6888 as at 20/04/2011.
As shown on chart 2, price of Axiata has been testing the RM 4.68~RM 4.70 a few times in 2011, and fortunately, until now, it is still supported by RM 4.68~RM .470. Therefore, the RM 4.68~RM 4.70 has become the important support for 2011.
As indicated by A, for the past two months, price of Axiata has been trending weak, and now testing the RM 4.68~RM 4.70 again. If price should break below this support, it means that those whom had been holding since December 2010, will turn their profit into losses. Therefore, it would create a strong negative memory at this level, and it could trigger more selling.
In other words, when price is testing an important support, it may seen like it is forming a bottom, but we should not try to buy low. As for long term investors, a good idea is to refer to the weekly chart of Axiata for a bigger picture. Refer to Chart 2A.
Chart 2A : Axiata – 6888 as at 20/04/2011. Weekly.
As indicated by A, on Chart 2A, since entering its uptrend in the middle of 2009, price of Axiata has been staying above the rising 14, 21, 31 Weekly EMA, a long term dynamic support. If price should break below this long term dynamic support, it suggests that the long term uptrend is violated. Thus a signal to consider to take profit.
| 4 Q Rolling PER | 22.38 times | Dividend Yield | 2.13% |
| Dividend | Dividend Yield | Net Profit Ratio | |
| 31/12/2010 | 10 sen | 2.02% | 11.33% |
| 31/12/2009 | 0 sen | 0.00% | 12.61% |
| 31/12/2008 | 0 sen | 0.00% | 4.39% |
Table 1: Axiata – 6888, yearly dividend, dividend yield, and net profit ratio.
Benalec – 5190: Forming higher-low.
Chart 3: Benalec – 5190 as at 20/04/2011.
As shown on chart 3, price of Benalec broke above the 14, 21, 31 EMA on the 23rd of March, and rose all the way to RM 1.61. Price retreated as profit taking took place, but as indicated by A, the 14, 21, 31 EMA is still supporting the price, forming a higher-low. Meanwhile, the 14, 21, 31 EMA is also serving as the dynamic support.
Based on the chart of Benalac, price is likely to remain its short term uptrend, and investors could choose to hold. However, it is not time to use the 14, 21, 31 EMA yet, until price should start rising. As for new investors whom are interested in taking up position, the same strategy is applied here.
Nevertheless, if price should start rising, it will have to test the RM 1.57 ~ RM 1.61, and technically, to form an uptrend, price has to first form a higher-low, then followed by breaking its recent high, (new high).
Tenaga–5347: Weakness remains in consolidation.
Chart 4: Tenaga–5347 as at 20/04/2011.
As shown on chart 4, price of Tenaga has been testing the RM 5.95~RM 6.00 support many times, since February, 2011. With the support remains intact, it has prevented the downtrend of Tenaga from worsen, and price is entering a consolidation. However, lower-highs formation is still visible, as every time price rebounded from the support, the upper turning points are getting lower, which shows the weakness of the consolidation.
Technically, formation of lower-highs suggests weakness of the trend, but the other important factor that determines the downtrend is the break out below the RM 5.95~RM 6.00 support. It is usually not a good time to buy right now. Unless, price should break above the 14, 21, 31 EMA and later forms a higher-low.
Conclusion:
As illustrated by above examples, when stock price is testing the important support, it might seem like it is staying at a “lowest” point, but it is important for one to wait until it really starts forming an uptrend, then only buy. Buying too early while price is still testing the support is impulsive, and once stock price break below the support, selling pressure is expected to be strong.
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