Chart 1: Dow Jones Industrial Average, from 17/12/2007 to 29/07/2009.
As shown on Chart 1, the Dow Jones Industrial Average finally broke above the 200-day Moving Average, entering a new trend, and its likely to break away from the 19 months bear run. At the same time, stock market across the globe rallied, and the KLCI also broke above the Symmetrical Triangle, up more than 100 points. However, the recent rally of the KLCI was only accompanied by thin volume. This means that there are still many investors who are not taking part in the recent market rally, and missed this opportunity. In additional to missing the current rally, investors also having problem in selecting the right stocks, and therefore, this week, we shall discover how one should over-come the obstacles which causes him or her missing the rally.
KLCI rallied with weak volume.
Chart 2: KLCI chart from 9/04/2009 to 30/07/2009.
When the KLCI broke above the Symmetrical Triangle, it triggered a bullish signal, but the insufficient volume (below the 40-day VMA level) was the set back for the KLCI rally, suggested that the market rally was not fully participated by investors. As a result, many investors failed to take the opportunity as the market confidence was not high. Despite the lack of participation, the KLCI rose over 100 points, and marked a 12 months new high.
Over-cautious, missing the right timing.
Since March, 2009, our market entered a bull run, and many counters had rallied substantially. However, not every investors managed to take advantage of the bull run, because they were too cautious, worrying the economic condition in local and abroad, listed companies financial results and even political issues. These worries prevented investors from taking the opportunity in March, missing the best timing of investing.
It is impossible for an individual to gather all the necessary information at one time, and therefore, it was impossible for them make a proper trading decision. Actually, a sound trading plan is all an investor should need, and with a trading plan, investors can make trading decision at any given time, because the trading plan will outline the trading risk, and therefore, investors could measure the maximum risk in which they would be taking if they decide to buy any stocks. This way, instead of over worries while seeing opportunities passing by, investors can take control of these opportunities, by taking a measurable risk.
A Systematic Approach in Analysis:
Most of the time, after suffering serious losses, investors will eventually be afraid of chasing any rally, and believe that the best time to invest is when the stock price is trading at its lowest, with the best economic data, and with all positive factors. However, in reality, by the time the market is filled with positive factors, wonderful fundamental results, and best economic data, the stock market has already reaching its peak. This is because stock price and stock market usually reflects the economy and fundamental of a company 3 to 6 months earlier. Therefore, it is impossible to get a bargain. Please study table 1.
| Step 1: | Broad Market Analysis (Including KLCI, Dow Jones Industrial Average, and regional indices) |
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| Step 2: | Individual Counters Analysis |
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| Step 3: | Apply Trailing Stops. |
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Table 1: Steps in Systematic Analysis and Trading Plan.
Case Studies : Lioinind 4235
Chart 3: Lionind 4235, chart from 9/04/2009 to 30/07/2009.
As indicated by A, price of Lionind broke above RM 1.50 resistance on the 28thof July, marking a new high since 10/09/2008 (10 months), triggered a buy signal. As indicated by B, after breaking new high, price of Lionind retreated as profit taking took place. However, it was supported by the RM 1.50 level, and therefore, the immediate cut-loss point is at RM 1.50. If later price of Lionind should rally, the 14, 21, 31 EMA shall serve as the dynamic support, as well as the Trailing Stop reference. As long as price is above the rising EMA, investors should consider holding their shares. If later, price should break below the 14, 21, 31 EMA, it would be a signal to take profit or cut-loss. Next resistance for Linoind are seen at RM 1.77 followed by RM2.00 level
Case Studies: UNISEM 5005
Chart 4: Unisem 5005, from 9/04/2009 to 30/07/2009.
As indicated by A, price of Unisem broke above RM 1/.53 resistance on the 26thof July, marking a new high since 21/2/2008 (17 months). Technically, this is a buy signal, with the immediate cut-loss point at RM 1.53 level. As indicated by B, price of Unisem retreated after the break out, but precisely supported by RM 1.53. Therefore, the RM 1.53 support remains intact, and it has not triggered a sell signal. If price should move higher, the 14, 21, 31 EMA shall serve as the dynamic support as well as the Trailing Stop reference.
Table 2:
| Stocks currently breaking new high: | |||
| Stock Name and Code | Buy signal. | Trailing Stops. | Next Resistance |
| 4715 – GENM | 13 months New High | 14, 21, 31 EMA | RM3.05 and RM3.35 |
| 8575 - SAPCRES | 20 months New High | 14, 21, 31 EMA | RM1.88 and RM2.00 |
(Note: Based on the closing price of 30/07/09)
Table 2 shows stocks which break new high, triggering a buy signal, and also the Trailing Stop reference.
Table 3:
| Stocks currently testing its resistance: | |||
| Stock Name and Code | Buy signal. | Trailing Stops. | Next Resistance |
| 3417 – E&O | Testing RM1.20 Resistance | 14, 21, 31 EMA | RM1.45 |
| 4898 – TA | Testing RM1.20 Resistance | 14, 21, 31 EMA | RM1.30 and RM1.54 |
| 5060 - Kinstel | Testing RM1.04 Resistance | 14, 21, 31 EMA | RM1.19 and RM1.39 |
(Note: Based on the closing price of 30/07/09)
Table 3 shows stocks now testing their resistance, and potential buy signal when breaking new high, with trailing stop reference.
Conclusion:
There will be risk in investing, and no body can be sure of getting a winning trade every time. In reality, stock investment is far more difficult than those described in advertisements. Knowing that some risk is unavoidable, investors must learn to construct his or her trading plan, setting a cut-loss or contingency plan in case things do not work out as planed, and when time is not right, investors should take defend by holding cash, not shares. In short, when you have a prepared cut-loss plan, you can find trading opportunity at any time.
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