Technical and Fundamental Analysis:
There are two basic analysis in the stock market, one is Technical, the other is Fundamental. The idea of Technical Analysis is the study of price movement, which is trend. Basically, Technical Analysis is a statistic of price, and its is a knowledge which professional investors must have.
Fundamental is a study of company's back ground and its financial, to evaluate the value of the stock price.
A comprehensive type of investors or traders combine Technical Analysis with Fundamental, and design a trading plan before buying any stocks. In this series of article, we shall provide some thoughts and method on stock investment and analysis, with real individual counter's Case Studies. This way, readers will get to know some information and background of the company, and eventually, understand the true meaning of analysis.
Technical Chart Patterns: Triangle
In the field of Technical analysis, chart patterns analysis is considered the most important aspect, and then followed by volume, and other indicators such as RSI, Stochastic, etc, and a Triangle is most common type of chart pattern.
When a price movement is forming Symmetrical Triangle, or even other types of Triangle, such as Ascending Triangle and Descending, it means that the price is consolidating, as the fluctuation of price within the Triangle will be getting narrower, until a valid break out above or below the Triangle. A break out suggests an end to the consolidation, and a beginning of a new movement.
Chart 1: KLCI Symmetrical Triangle.
As shown in Chart 1, the KLCI formed a Symmetric Triangle from 18/05/2009 to 13/07/2009, with the L1 line being the dynamic resistance and the L2 line being the dynamic support. The KLCI consolidated within the Symmetric Triangle for about 2 months, and finally, broke above the L1 dynamic resistance line, as indicated by A. The breakout suggested that the consolidation was over, and the KLCI has started an upside movement, resuming its previous uptrend. This is a classic example of a breakout.
Chart 2: Genting, Breaking above the Symmetrical Triangle.
As shown on Chart 2, price of Genting formed a similar Symmetric Triangle around the same time as the KLCI. With L1 being the dynamic resistance while L2 being the dynamic support. After consolidating for about 2 months, price of Genting broke out above the L1 line on the 20/07/2009, breaking away from its consolidation and resumed its uptrend (Study A), and technically, this is a buy signal.
Case Studies:
Bursa – 1818, Forming Ascending Triangle.
Chart 3: Bursa – 1818, chart from 8/06/2009 to 01/10/2009.
As shown on chart 3, price of Bursa hit a resistance at RM 8.30 to RM 8.40 level, and price retreated sharply. However, as indicated by A, price of Bursa rebounded on the 3/09/2009, forming a Higher-low, which forms the T1 uptrend line. After being supported by the T1 uptrend line, price rebounded again, but hit the previous resistance at RM 8.30 and RM 8.40 level, forming an Ascending Triangle.
The Ascending Triangle suggests a consolidation of an existing uptrend, but with a resistance. Nevertheless, as long as the price of Bursa is still above the T1 uptrend line, the uptrend remains intact. If price of Bursa should rebound from the T1 again with a Higher-low, it would be a buy signal, and the T1 line shall continue serving as the Trailing Stop reference.
As for those investors who are holding Bursa shares, it is fine to hold on the stock as long as the price is above the T1 uptrend line, and if price should resisted by the RM8.30 level again, and if investors should feel uncomfortable, he or she can take partial profit, selling 1/3 of the position. This way, it will gradually reduce the trading risk, and at the same time, not taking profit too early.
If price should break below the T1 uptrend line, it means that the uptrend is no longer valid, thus the supports are at RM 7.75 followed by RM 7.55 level. Resistance shall remains at RM 8.30 and RM 8.40 level.
Latest Financial Summary as at 30/6/2009：
| PER* | 51.06Times | Dividend Yield | 2.97% |
| Dividend | Dividend Yield | Net Profit Ratio | |
| 31st of Dec, 2008 | 24.30 sen | 4.81% | 31.48% |
| 31st of Dec, 2007 | 85 sen | 6.54% | 48.91% |
| 31st of Dec, 2006 | 54.50sen | 6.57% | 41.55% |
| 31st of Dec, 2005 | 20.00sen | 5.46% | 42.13% |
| 31st of Dec, 2004 | 0sen | 0% | 16.06% |
Table 1: Financial Summary of Bursa.
Pelikan – 5231, About to break out form a Symmetric Triangle.
Chart 4: Pelikan – 5231, Chart from 9/6/2009 to 1/10/09.
As shown on Chart 4, price of Pelikan formed a Symmetric Triangle, a consolidation pattern, with the L1 line being the dynamic resistance while the L2 line is the dynamic support. When price is consolidating within the Symmetric Triangle, the fluctuation of price is gradually reduced, which is a similar effect of the Bollinger Bands contraction. The Symmetric Triangle also implies that the price of preparing for a new movement, and new movement shall begin when price break away from the Symmetric Triangle.
As indicated by A, Pelikan is now at the breaking point of the Symmetric Triangle, which means that a break out is going to take place at any moment. If price should break above the L1 line, with substantial volume, it would be a bullish signal, thus a buy signal, and the Bollinger Middle Band shall serve as the first support and cut loss point. However, if price should break below the Symmetric Triangle, it would be a bearish signal, suggesting a beginning of a downside movement, thus a signal to cut-loss.
Bollinger Bands
With the Bollinger Bands of Pelikan is about to re-expand, investors can also refer to the Bollinger Bands for trading signals. When the Bollinger Bands re-expands, it means a beginning of a new movement after a consolidation, and if price should stay above the Bollinger Middle Band when the Bollinger Bands Width expands, it would be a buy signal. On the other hand, if the Bollinger Bands Width should re-expands with the price below the Bollinger Middle Band, it would be a bearish signal, suggesting a forming of a downside movement, thus a signal to cut loss. Nevertheless, for investors who are holding Pelikan, the support is at RM 1.48, while the resistance are found at RM 1.66 followed by RM 1.75 level.
31st of Dec, 200830/6/2009：
| PER * | 68.44 Times | Dividend Yield） | 1.30% |
| Dividend | Dividend Yield | Net Profit Ratio | |
| 2 sen | 2.06% | 3.15% | |
| 31st of Dec, 2007 | 11sen | 2.76% | 7.79% |
| 31st of Dec, 2006 | 15sen | 4.08% | 11.73% |
| 31st of Dec, 2005 | 12sen | 5.88% | 11.37% |
| 31st of Dec, 2004 | 0sen | 0% | -16.87% |
Table 2: Pelikan Financial Summary.
* Notes on PE:
Generally, a PE (Price Earning Ratio) takes the current price and divided by the total Earning per share of last financial year. To better illustrate the current changes of the company earning, we choose to use the Rolling Price Earning Ratio, which takes the latest 4 quarters earning per share into account.
Conclusion:
The above are some of the ways of analysis, and the examples do not imply any buying tips, and readers are advised to read the analysis in detail, as the case studies is used for educational purpose, not a recommendation. Investors should understand that the investing style of individual investors and fund manager is totally different, and therefore, a proper trading plan should be laid out before deciding to buy or the sell. Of course, we shall discuss more other analysis approach in the future.
In short, making money from the stock market is never easy, and there is no magic formulas. Investing is a process of studies, and a collective of experiences, and most of the time, it is a rather boring process. In other words, there is no short cut courses in the stock market, and we have to understand, that even professional fund manager still have to study and improve themselves, and therefore, no individual investors should be making any claims that investing is easy. There is always risk in trading, and what is important is how one manage the risk, and we will be providing more Case Studies in the future.
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