Chart 1: KLCI chart from 23/04/2009 to 13/08/2009
As shown on chart 1, the FBM KLCI Bollinger Bands Width contracted for about 3 weeks, and this shows that the KLCI is still consolidating while preparing for a new movement. Meanwhile, many individual counters are consolidating with their Bollinger Bands Width contracting. If the Bollinger Bands of the KLCI should re-expands, many counters will be having a similar signal as they will be breaking away from their consolidation. Therefore, this is a suitable time to monitor the Bollinger Bands Width. This week, we shall review some of the counters mentioned last week as well as a method to gradually reduce positions to take profit or the cut-loss.
Partial Distribution:
Generally, it is fairly simple to hold position(s) if the price of a stock should stay above the rising 14, 21, 31 EMA dynamic support. However, at some situation where the price is rising too quickly, or should investors feel uncomfortable holding their shares, they can consider partial distribution by selling a portion of their position (1/3). When they had sold a portion of their position, they will reduce pressure. Another advantage of partial distribution is when the stock price should continue to climb after you had taken profit partially, you will not be regretted as you still have a portion of your position riding with the uptrend. Although you could not sell all your stock at the highest price, you are gradually reducing your trading risk, while at the same time, executing your trading plan.
If price should break below a support level, it is time to cut-loss. However, to cut loss requires a lot of courage, and not everyone is trained to take such action, and failing to cut loss is always the biggest killer to one's portfolio. Whenever you should feel helpless and unable to cut loss, you can always consider cut a portion of your position first. The reason why most people do not cut loss is because they are afraid that price might rebound after they had cut loss. Therefore, by cutting a portion of your position, you can reduce the psychological burden of such fear. If price should continue to fall after your had cut loss, selling the remaining is no longer a difficult task as you had already accepted that the trade is not perfect. On the other hand, should price rebound after you had cut loss, you can choose to hold on the remaining shares or even buying again when price is moving higher based on the market condition.
Case Studies Review:
Chart 2: Kinstel – 5060, chart from 23/04/2009 to 13/08/2009.
As shown on chart 2, price of Kinstel broke new high on the 4th of August, but however, due to the lack of volume, it failed to rally, and instead, it was moving sideways after the breakout, entered a consolidation stage. As indicated by A, price of Kinstel fell below the Bollinger Middle Band once, but managed to rebound back to above the Bollinger Middle Band. At the moment, the Bollinger Bands Width is contracting, suggesting it is still consolidating, and the uptrend is still yet to be confirmed, but since the price has dropped below the Bollinger Middle Band before, it was a signal to cut-loss partially; if price should fall below the Bollinger Middle Band again, it would be a signal to cut loss again.
Chart 3: LBS- 5789, chart chart from 23/04/2009 to 13/08/2009.
As indicated by A, Bollinger Bands Width of LBS expanded on the 4thof August with price above the Bollinger Middle Band, and therefore, it was a buy signal with the Bollinger Middle Band being the immediate support. As indicated by B, price of LBS retreated but managed to be supported by the Bollinger Middle Band, and therefore, it has formed an uptrend. As price is forming an uptrend, it is suitable to switch to 14, 21, 31 EMA as the dynamic support as well as the Trailing Stop reference. Provided price could remain above the rising EMA, investors can choose to hold on to their position(s). If price should break below the EMA, it is a signal to take profit.
Chart 4: Axiata – 6888, chart from 23/04/2009 to 13/08/2009.
As indicated by A, the Bollinger Bands Width of Axiata expanded on the 7thof August, with price above the Bollinger Middle Band, and therefore, it was a buy signal. At the moment, the Bollinger Bands Width is still expanding with price remains above the Bollinger Middle Band, and therefore, the uptrend remains intact. Investors can apply the 14, 21, 31 EMA as the dynamic support for the uptrend as well as the guideline for trailing stops. In other words, provided that price of Axiata is above the rising EMA, investors can stay on the the uptrend, and if price should break below the EMA, it is a signal to take profit.
Chart 5: Tebrau – 1589, chart from 23/04/2009 to 13/08/2009.
As shown on chart 5, Tebrau's Bollinger Bands Width is still contracting, suggesting that price is still consolidating while still preparing for a new movement. Therefore, investors should monitor the changes of the Bollinger Bands, and if the Bollinger Bands Width should expands with price above the Bollinger Middle Band, it would be a bullish biased signal and the consolidation would end. Other wise, if the Bollinger Bands should expand with price below the Bollinger Middle Band, it would be a bearish biased signal, and immediate outlook for Tebrau would be bearish biased.
Chart 6: Huaan – 2739, chart from 23/04/2009 to 13/08/2009.
As indicated by A, the Bollinger Bands Width of Huaan has been contracting for about a month, and finally, re-expanded on Thursday, with price above the Bollinger Middle Band. This suggests that the consolidation has ended, and price is now having a new movement. With price above the Bollinger Middle Band, the immediate outlook for Huaan is bullish biased, and therefore, a buy signal, with the first cut-loss point at the Bollinger Middle Band. If the Bollinger Bands Width should continue to expand, with price above the Bollinger Middle Band, more upside movement is expected for Huaan and the first resistance is seen at RM 0.59 level.
Chart 7: Mulpha – 3905, chart from 23/04/2009 to 13/08/2009.
As indicated by A, the Bollinger Bands Width of Mulpha re-expanded (72%) after being contracted for a period of time. At the moment, price of Mulpha is above the Bollinger Middle Band as the Bollinger Bands Width expands, this suggests that the consolidation is likely to end as the new movement is about to begin. If the Bollinger Bands Width should continue to expand, with price above the Bollinger Middle Band, it is likely that Mulpha would form an uptrend with the Bollinger Middle Band as the first cut-loss point. Resistance for Mulpha is seen at RM 0.65 level.
Conclusion:
At the moment, many counters are consolidating in line with the KLCI consolidation, and therefore, it is a good time to monitor the Bollinger Bands. When the Bollinger Bands has been contracting for a period of time, the re-expansion of the band width is usually much clearer, thus producing a clear signal. When the Bollinger Bands Width re-expands with price above the Bollinger Middle Band, it would be a positive signal, (buy signal), and if investors should choose to buy with that signal, the Bollinger Middle Band shall be the first cut-loss point. If price should advance and form an uptrend later, investors can apply the 14, 21, 31 EMA as the uptrend trailing stop reference, and when necessary, take profit partially and yet honoring the trading plan.
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