When a stock started to rebound from its lowest point, it must first break its most recent resistance, and after some profit taking activities, price should retreat. However, if price should rebound again at a level higher than the previous rebound, after some profit taking, it would be forming a "Higher-Low". In short, the characteristic of an Uptrend is "New High" and "Higher-Lows".
Not only investor can buy at "Higher-Low", investors could also top up their positions at every "Higher-low" of an uptrend.
(Study Chart 1).
Buying on "Higher-Low" is a very important trading concept, but not all investors can accept this concept, for this concept will discourage traders to buy at the lowest price.
(Chart 1): (A) indicated formation of "Higher-low".
If there are 5 corrections in an uptrend, the last correction would be a reversal. In other words, if traders would buy at every rebound during an uptrend after a correction, chances for traders to buy correctly in the uptrend is 4/5, which is 80%, and the chances to buy at the reversal is 1/5, which is 20%. This has simply outlined the probability of trading right in an uptrend, and therefore, buying at new low is indeed a very risky method.
Below is an example of Buying only at Uptrend Rebound:
Malaysian Bulk Carriers Bhd. - Maybulk [5077]
(Chart 2): Maybulk [5077] as at 02/03/09, closing price at RM2.82.
As indicated by A, B, and C, price of Maybulk is trending up, and forming "Higher-lows". We had chosen to apply the 14, 21, 31 EMA as the dynamic support for this uptrend. Provided that price of Maybulk could remain supported by the rising 14, 21, 31 EMA, the uptrend is expected to continue, and rebounds like A, B, and C, would be buying signals.
Technically speaking, the best confirmation of "Higher-lows" would be a significant increased of volume during a rally. As shown on Chart 1, price of Maybulk has broken above RM 2.77 resistance, and therefore, the RM 2.77 is now the immediate support. Next resistance for Maybulk is seen at RM 3.40. If price should break below the 14, 21, 31 EMA or RM 2.77, it would be a signal to take profit or to cut loss.
Below are some fundamental information of Maybulk:Major Share-holders:1. PACIFIC CARRIERS LTD 344,615,000 Shares (34.46%)2 BANK PEMBANGUNAN MSIA BHD 183,945,700 Shares (18.39%)3 MALAYAN SUGAR MANUFACTURING CO. BHD 79,845,600 Shares (7.98%)4 PPB GROUP BHD 60,154,400 Shares (6.02%)5 EMPLOYEES PROVIDENT FUND BOARD 26,921,225 Shares (2.69%)
Latest Financial Result as at 31/12/2008:
Based on the previous yearly dividend yield, Maybulk is considered as high dividend yield stock, which is usually a favorite choice of Fund Managers, High Dividend investors, or conservative investors. With its latest PER only at 5.19 times, it means that the current price of Maybulk is relatively low. On the other hand, the Baltic Dry Index (BDI) had rebounded 1351 points from its 2008 low of 663 points, or a 200% rebound. (Study Chart 3). The BDI is an index that measures the demand for shipping capacity versus the supply of dry bulk carriers. If the BDI should continue rising, it would be suggesting that the demand of dry bulk shipping is increasing, which is a positive factor for Maybulk. Based on the previous yearly average Price-Earning-Ratio, if Maybulk's earning is as good as last year, it would have a potential of reaching its target price of RM 4.84. Nevertheless, with the overall market sentiment across the globe still being weak, the overall trading risk is still high, despite the good fundamental of Maybulk. If the BDI should fall, it means that the international demand on dry bulk shipping is still not recovering, thus suggesting the global economy is still on the weaker side, and this would directly affect the upside potential of the price of Maybulk. In conclusion:When a stock price has ended its downtrend and started to rebound, it would form "Higher-lows". If traders should buy only on the uptrend rebound, chances for him or her to buy at the last rebound is only the last rebound before the uptrend ends, thus the probability of buying right is good. Nevertheless, if price of Maybulk should break below the 14, 21, 31 dynamic support or RM 2.77 level, it would be a signal to take profit or to cut-loss.
Source : WinChart, Straits Index (M) Sdn Bhd http://www.straitsindex.com/ | ||||||||||||||||||||||||||||
