Chart 1: KLCI as at 13/4/2011.
As shown on chart, the KLCI had a sharp correction last week, and during the correction, the KLCI had briefly broken below the 14, 21, 31 EMA, but was supported by the 1525 level and rebounded on Wednesday.
Technically, the couple of falling days could not indicate a reversal, but merely a technical correction. Unless, of course, the KLCI should form a lower-high, then it would be an early warning signal. Nevertheless, market volume has fallen below the 40-day Volume Moving Average. Generally, if volume should remain low, the market or the KLCI is less likely to regain its strength.
Case Studies:
Revision of last week's case study: Mahsing – 8583: Testing new high.
Chart 2: Mahsing – 8583 as at 13/04/2011
As indicated by A, price of Mahsing was resisted by the RM 2.73 resistance and started falling. However, the falling was rather mild, which seems to be a healthy correction. As shown on chart 2, the T1 uptrend line for Mahsing remains intact, and if price of Mahsing should rebound from the T1 line, the uptrend is likely to continue. But to sustain the uptrend, a valid break out above the RM 2.73 resistance is a must.
Technically, if price should rebound from the T1 or the 14, 21, 31 EMA dynamic support, it would be another formation of a higher-low, which is an important characteristic of an uptrend. Therefore, in general, when price should stay above the 14, 21, 31 EMA or the T1 line, it is a good idea to hold. Provided one should gradually lift the cutloss level higher according to the 14, 21, 31 EMA as a trailing stop.
As for those whom are interested in taking up new position, a higher-low signal would be a good entry signal, but of course, the condition of the market at the time of forming a higher-low plays an important factor which affect the strength and reliability of the signal. However, since price of Mahsing has not broken new high, new investors are not advisable to apply the 14, 21, 31 EMA as a trailing stop, but to first set a base line with RM 2.30 as the cut loss point. Only apply trailing stop when price breaks new high and extended the uptrend. If one should feel that the risk losing between his or her entry point to the cut loss point or RM 2.30 is too high, it is better to give up this trade.
| 4 Q Rolling PER | 18.24 times | Dividend Yield | 2.93% |
| Dividend | Dividend Yield | Net Profit Ratio | |
| 31/12/2010 | 7.60 sen | 3.03% | 10.64% |
| 31/12/2009 | 6.50 sen | 3.61% | 13.44% |
| 31/12/2008 | 8.00 sen | 5.00% | 14.30% |
| 31/12/2007 | 8.00 sen | 4.17% | 14.15% |
| 31/12/2006 | 12.00 sen | 3.57% | 13.19% |
Table 1: Mahsing – 8583, yearly dividend, dividend yield, and net profit ratio.
Hiaptek – 5072: Forming higher-low for the first time after so long.
Chart 3: Hiaptek – 5072 as at 13/04/2011.
As indicated by A on Chart 3, price of Hiaptek rebounded from the 14, 21, 31 EMA on the 7th of April, forming a higher-low, and this is an early signal implying that an uptrend could be forming, and later price of Mahsing broke above RM 1.11 resistance. After the break out, price of Mahsing pullback as affected by the general market performance. Fortunately, volume was significantly smaller during the pullback as this implies that the pullback was rather healthy as no panic selling is seen.
If price should later rebound from the 14, 21, 31 EMA, it suggests that the short term uptrend is likely to continue, but if price should break below the 14, 21, 31 EMA, then the uptrend is violated. For those whom had bought early, it is a good idea to practice the trailing stop method, by using the 14, 21, 31 EMA as a trailing stop reference, or take RM 1.00 as a base line. Next resistance of Hiaptek is seen at RM 1.15.
| 4 Q Rolling PER | 10.77 times | Dividend Yield | 1.36% |
| Dividend | Dividend Yield | Net Profit Ratio | |
| 31/07/2010 | 1.50 sen | 1.15% | 4.76% |
| 31/07/2009 | 1.50 sen | 1.50% | 3.68% |
| 31/07/2008 | 4.11 sen | 2.60% | 9.35% |
| 31/07/2007 | 2.50 sen | 1.05% | 5.53% |
| 31/07/2006 | 2.50 sen | 3.05% | 3.19% |
Table 2: Hiaptek – 5072, yearly dividend, dividend yield, and net profit ratio.
JCY – 5161: Forming Higher-low.
Chart 4: JCY – 5161 as at 13/04/2011.
As shown on chart 4, price of JCY formed a higher-low, after falling for a year, and the formation of higher-low had been absent for a long time. When price formed a higher-low, it was also supported by the 14, 21, 31 EMA, and also broke above the RM 0.78~RM0.80 resistance. However, the correction of the market pull JCY price back last week, but as indicated by A, price of JCY is still supported by the 14, 21 ,31 EMA, and this means that there is still a chance for the uptrend to form.
If price should rebound from the 14, 21, 31 EMA, the 14, 21, 31 EMA shall continue serving as the dynamic support and break out above the RM0.78 ~ RM 0.80 is possible, then a uptrend would sustain.
Technically, the most ideal break out would be a break out with strong volume, and of course, the condition of the overall market is very important too. If any one should be interested in taking up new position, a good break out above RM0.78~RM0.80 with strong volume should be viewed as a buy signal, but he or she should set a base line at RM0.67~RM0.80. If price should continue its uptrend, then only switch to the 14, 21, 31 EMA as the trailing stop reference.
Please be reminded that price of JCY has been falling or about 1 year, since its peak of RM 1.98, and only now it is showing some sign of a possible uptrend. On one hand, it appears that the price of JCY now is “cheap” and one could understand why most would call it a “bottom fishing” opportunity.
On the contrary, one should also consider the other side of the factor, which is the selling pressure. Consider that during the course of a downtrend, many investors whom initially bought must have thought that their entry price was “reasonable” or “cheap” or else, they would have waited. But as price fall, these now regret investors are losing money, some are losing so much that they only wanted to break even. Therefore, there are many losers in the downtrend are now looking forward to break even, and this notion will turn into “reader sellers” thus explained as selling pressure or resistance.
As always, there are two sides to a story, and how does one select and cope with the contradiction of ideas? This is the time where investors should first consider the risk involved, then only consider the potential reward. First, one must determine how much he or she is prepared to lose, and if the maximum allocated amount is bearable, then the next step is to try to follow the market flow, do not go against the general market direction. Do know that there is no system or method to find out how long or how strong an uptrend would go, and all uptrend are formed with the repetition of short term rallies.
Lastly, when in a situation where one finds him or herself torn between buying or not, or the analysis signals are not obvious, it is best to give up the trade, look for something else more manageable. Because, trading is a private matter, you don't have to feel pressure just someone else bought the same counter.
Conclusion:
Technical analysis, is a study of stock past behavior, and when there are no special events that causes drastic movement, technical analysis believe that there is a logic path to the stock behavior. Despite all that, still, it does not have they ability to forecast, not even the next minute. The use of technical analysis is to help one understand the risk behavior of a counter, then from there, design a trading plan, and follow the general market direction, and hopefully profit from it. For those shallow thinkers, who solely rely on “signals”, technical analysis becomes meaningless. That is why you will hear many people complaining about the fault of technical analysis, it is not the system, it is the person that has problem.
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