Chart 1: FBMACE chart from 2/11/2009 to 3/3/2010.
As shown on chart 1, despite the KLCI has gained over 60 points since the rebound from 1224 points, the FBMACE, on the other hand, did not show any signs of improvement, but instead, falling lower. This suggests that the recent market rally is rather selective, thus now most of the counters are following the major market movement. Nevertheless, as indicated by A, the FBMACE Bollinger Bands contracted for about 2 weeks, and finally re-expanded, with the FBMACE situated below the Bollinger Middle Band. Therefore, the immediate technical outlook for the FBMACE is bearish biased.
Illiquid Counters: Lack of technical conditions.
Chart 2: LNGRES from 3/6/2009 to 3/3/2010.
As shown on chart 2, price of LNGRES is very volatile, and from its recent low RM0.135 to its range high or RM 0.195, the fluctuation is up to 44.4%. And despite the high volatility, there is no clear trend nor direction for LNGRES. This is because the trading pattern is illiquid, and therefore, the price movement behavior does not form any analyzable patterns.
As indicated by A, when a stock is very illiquid, it is highly possible that the entire day is only trading at one price, and therefore, technically, it is impossible to analyze this kind of counters.
Meanwhile, as table 1 is showing, the fundamental for LNGRES is not bad, and in fact, it is paying out dividend rather regularly, but still, due to the illiquid condition of this counters, technical analysis has no way to analyze the price movement. In other words, investors who bought this kind of counters have to bare with the extremely volatile of price and generally not suitable for short term trading nor trend trading.
| 4 Q Rolling PER | 13.91 times | Dividend Yield | 3.13% |
| Dividend | Dividend Yield | Net Profit Ratio | |
| 31/12/2009 | 0.5 sen | 3.12% | 7.33% |
| 31/12/2008 | 1.5 sen | 13.64% | 16.06% |
| 31/12/2007 | 1.5 sen | 31.25% | 7.33% |
| 31/12/2006 | 2 sen | 6.67% | 25.82% |
| 31/12/2005 | 3 sen | 10% | 22.44% |
Table 1: LNGRES yearly Dividend, Dividend Yield, and Net Profit Ratio.
Low-priced Mininum Bid: High Cost of Trading
Chart 3: Palette chart from 7/8/2009 to 3/3/2010.
As shown on chart 3, price of Palette is now trading at a very low price, and it is fluctuating in minimum bids. Despite moving only in sideways movement, its price fluctuates as high as 37.5%. This is due to the minimum bid is half a sen, while the stock is trading at only 4 sen, and therefore, the minimum fluctuate of the price is 12.5%. In other words, if a seller who wants to sell his share at the best buying price, he would have to sell it at least 12.5% lower then the market price; or if a buyer who wants to buy it at the best selling price, he would have to pay at least 12.5% higher then the market price. In short, low-priced minimum bid counters force investors to pay higher to get int, and receive lower to get out.
Meanwhile, technical indicators including Bollinger Bands or the Moving Averages has lost its practical value in these low-priced minimum bid stocks. (Please refer to Table 3 for minimum bid table)
| 4 Q Rolling PER | -16 times | Dividend Yield | 0% |
| Dividend | Dividend Yield | Net Profit Ratio | |
| 31/12/2009 | 0 sen | 0% | -20.61% |
| 31/12/2008 | 0 sen | 0% | -138.17% |
| 31/12/2007 | 0 sen | 0% | 5.62% |
| 31/12/2006 | 0 sen | 0% | 10.62% |
| 31/12/2005 | 0 sen | 0% | -55.06% |
Table 2: Palette, yearly dividend, dividend yield, and net profit ratio.
| Price Range | Minimum Fluctuation (Sen) |
| Below RM 1.00 | 0.5 |
| RM 1.00 to RM 9.99 | 1 |
| RM 10.00 to RM 99.98 | 2 |
| RM 100 and Above | 10 |
Table 3: Minimum Bid.
Low-price and Constantly New-Low Counter:
Chart 4: DSCSOL from 9/12/2009 to 3/3/2010.
As shown on chart 4, except for the first day of its IPO, which push its price up RM 0.915, price of DSCSOL has, since then, continuously falling, despite a few minor rebound. The 14, 21, 31 EMA is still serving as the dynamic resistance as the downtrend remains intact.
Although price of DSCSOL is now as low as RM 0.25, its is still making new low constantly, as indicated by A. Therefore, investors should always remember that to buy on the right trend, is to wait until the price is moving up, not do buy while the price is trending down, this is because when buying into a downtrend, chances of getting stuck in the downtrend is much higher. Due to its constant new low, there is no reliable support at the moment, while the 14, 21, 31 EMA is still the dynamic resistance.
| Leading PER | 2.91 times | Dividend Yield | 0% |
| Dividend | Dividend Yield | Net Profit Ratio | |
| 30/09/2009 | 18.5 sen | 0% | 0% |
Table 4: DSCSOL yearly dividend, dividend yield, and net profit ratio.
Conclusion:
From the above examples, we can see that trading on these counters are associated with high risk. Therefore, unless one has some strong reasons, technically one should avoid these counters, especially for short term trading.
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