Generally, a best buying timing is after a bear run, as there are more upside room in almost every stocks. It is a better strategy to buy when the stock is rebounding and forming an uptrend, rather than buying during the stock is falling. This is called buying with up trend. Other than buying a new position, topping up a new position is also applicable during a continuation of an uptrend.
It is very important to only buy during an uptrend, but many investors find this hard to bear, because when buying on an uptrend, the price is never the lowest. Nonetheless, if the uptrend has 5 correction, the last correction will mark the end of the uptrend. In other words,, during the formation of an uptrend, investor has 4 our of 5 chances to get into a right trend (80%), and only 1 out of 5 chances buying into a wrong trend (20%). This strategy contradict with the Buy low Sell high concept, and therefore, not suitable for those investors who subscribe to the idea of “Buy Low”.
We had chosen two case studies for this week, while one is to buy during an uptrend, and the other is to avoid buying during a downtrend.
Practical Case Studies:
Chart 1: Scomi – 7158, Chart from 4/6/2009 to 8/10/2009.
As shown on Chart 1, price of Scomi has reached its high of RM 0.825, and it started to retreat, forming a downtrend T1. As indicated by A, price of Scomi tested the T1 downtrend line on the 12/08/2009. Due the lack of buying interests, price failed to maintain above the T1 line, and returned to below the T1 downtrend line, and therefore, it was a false breakout. It also break below the 14, 21, 31 EMA, and therefore, it is a false breakout.
As indicated by B, after a month, price of Scomi retested the t1 downtrend line, but still resisted by the T1 line, and it suggests that the downtrend remains intact. As indicated by C, if price can break above the T1 line, with substantial volume as indicated by D, there is a chance for the price to break away from the T1 downtrend. As price break above the T1, it will be a buy signal, and investors can choose to apply the 14, 21, 31 EMA as the trailing stop reference. Current resistance for Scomi are seen at RM0.65 followed by RM0.71.
However, if price should retreated from T1 again, then the first support is at RM 0.56 level. In other words, if price should break below RM 0.56 level, it would be a new low for Scomi, and the downtrend remains intact, and investors should consider cutting loss.
Latest Financial Summary as at 30/6/2009：
| PER | 6.67 Times | Dividend Yield | 0.83% |
| Dividend | Dividend Yield | Net Profit Ratio | |
| 31/12/2008 | 0.50sen | 1.59% | 5.53% |
| 31/12/2007 | 1.25sen | 1.21% | 13.15% |
| 31/12/2006 | 1.25sen | 1.49% | 5.37% |
| 31/12/2005 | 1.20sen | 1.21% | 16.19% |
| 31/12/2004 | 0.50sen | 0.36% | 10.41% |
Table 1: Financial Summary of Scomi.
Chart 2: AMMB – 1015, chart from 16/06/2009 to 08/10/2009.
In October 2008, price of AMMB has touched its bottom, forming a Double Bottom pattern in November, and since then, it has entered an uptrend, and until now, it has gained up to RM 2.50 or 130%. As shown on the chart, AMMB is now forming an Ascending Triangle, with L2 line being the uptrend line while L1 (RM4.40) is being the resistance.
Generally, an Ascending Triangle suggests that the price is still in an uptrend but facing a resistance (L1), causing the uptrend to temporary consolidate. As indicated by A, price of AMMB rebounded from the L2 line and the 14, 21, 31 EMA, and later also broke above the RM 4.40 level, suggesting that it is breaking away from its consolidation, and continue its uptrend.
As indicated by A, when price is breaking out above the resistance, volume has to be significantly higher to confirm the bullish breakout. Investors can following the break out signal as a buy signal, while apply the 14, 21, 31 EMA or the L2 line as the trailing stop reference. In short, provided that the price of AMMB is still supported by the rising 14, 21, 31 EMA, the uptrend is expected to continue, and investors can continue holding their shares until price should break below the 14, 21, 31 EMA, it would be a signal to take profit.
Latest Financial Summary as at 30/6/2009：
| PER | 13.35 Times | Dividend Yield | 1.78% |
| Dividend | Dividend Yield | Net Profit Ratio | |
| 31/03/2009 | 8sen | 2.55% | 14.69% |
| 31/03/2008 | 6sen | 1.56% | 11.13% |
| 31/03/2007 | 5sen | 1.33% | -3.38% |
| 31/03/2006 | 5sen | 1.77% | 7.34% |
| 31/03/2005 | 4sen | 1.42% | 4.35% |
Table 2: Financial Summary of AMMB
Conclusion:
When price is still trending down, it is very important not to buy too early. Investors must wait until a valid breakout above the downtrend, then only can start buying. Meanwhile, investors should always monitor if the trend is still intact, before making any trading decision. Also, before buying, investors should plan a trading plan (cut-loss plan) and therefore, when things go against investors favorable direction, investors can execute their cut-loss plan without hesitation, to avoid being trapped by the downtrend.
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