Chart 1: KLCI as at 9/3/2011.
As indicated by A, the KLCI attempted to break the 1525 resistance line, but failed. Therefore, the KLCI is, at most, trading in a trading range. Meanwhile, as indicated by B, total market volume remains low. Generally, volume has to be above the 40-day Volume Moving Average, in order to suggests that the market is fueled with sufficient participation, which then only have a chance to push the market to a higher level.
What is volume:
It is a common mistake that investors believe that more buyers than seller, price would go up, or the reverse. However, this is totally incorrect. In the process of a complete trade, the number of buyers must be equal with the number of sellers. If any one who wishes to sell his share, there must be an equal amount of shares which the opposite buyer is willing to buy, then only the seller could off load his shares. Basically, volume is a record of the frequency of shares changing ownership.
If volume was only there to record the changes of ownership, it is not much of a meaning. However, when we combine the analysis of price with volume, it provides a better picture of the emotions of traders involved. For example, if a stock price opened at RM1.00 and closed at RM1.10, it rose 10 cents. If today's volume is 10,000 shares, it means there were 10,000 shares sold to new buyers. Then you should ask the next question, did the buyer pay a higher price to get the 10,000 from the existing sellers? The answer is yes.
Let's take a deeper look into the scenario. What is the intention of sellers? Seller sell because they are fearful. They are afraid that price may not go up further more, or price could start falling. It does not matter if the sellers are taking profit or cutting losses, the moment they wanted to sell, they are in fear. On the contrary, what is the intention of buyers? Buyers take risk to buy shares because they are greedy. Whether they are buying new position or topping up positions, they must believe that price could go higher or else, who would want to take risk? Next, we shall look at the price changes as a result of the trading between a fearful seller and a greedy buyer. If price should ended higher after trading, did the seller ask for a higher premium? If so, the buyers must have paid, willingly, a higher price to get their share from the sellers. In this case, who initiated the trade? It is the buyer. On the opposite, if price ended lower, it was the fearful seller who initiated the trade. Therefore, we always mention that when price fall with huge volume, it means the selling pressure is stronger.
The above explanation only illustrate the changes of price, in result of the conflict of buyer's greed and seller's fear for 1 day. How does this affect the coming movement of price? We will continue this discussion next week.
DIALOG – 7277: Remains in uptrend.
Chart 2: DIALOG – 7277 as at 09/03/2011.
As shown on chart 2, price of Dialog managed to break above the RM2.30 resistance, after the previous attempt on the 18th of February. At the moment, the 14, 21, 31 EMA is still serving as the dynamic support, thus the technical outlook for Dialog is still positive. (As indicated by A)
Meanwhile, as indicated by B, when price of Dialog breaks above the RM2.30 resistance, it was also associated wit huge volume, and this suggests that there was a strong inflow of fresh capital to offset the selling pressure, and most importantly, these new buyers are paying a higher price for the seller, which is a positive sign.
It is a good idea to hold for right now, as long as investors could lift the cut loss level or profit taking level gradually higher according to the 14, 21, 31 EMA, this way, the risk of trading will be lower.
| 4 Q Rolling PER | 35.81 times | Dividend Yield | 1.31% |
| Dividend | Dividend Yield | Net Profit Ratio | |
| 30/06/2010 | 3.1 sen | 2.82% | 10.19% |
| 30/06/2009 | 3.6 sen | 3.30% | 8.35% |
| 30/06/2008 | 3.1 sen | 2.31% | 9.49% |
| 30/06/2007 | 2.2 sen | 1.17% | 10.26% |
| 30/06/2006 | 3.6 sen | 6.67% | 12.83% |
Table 1: DIALOG – 7277, yearly dividend, dividend yield, and net profit ratio.
Pchem – 5183: Breaks new high, remains in uptrend.
Chart 3: Pchem – 5183 as at 09/03/2011.
As indicated by A, price of Pchem broke above the RM 6.40 resistance on the 8th of March, breaking a new high. Therefore, it is now extending its existing uptrend. Meanwhile, as indicated by B, when price broke new high, volume also increased significantly, and this has strengthen the break out signal, suggesting more greedy buyers replacing fearful selling whom are taking profit.
Technically, as long as price could stay above the 14, 21, 31 EMA, the uptrend shall remain intact. Please note that after a valid break out above the resistance, it is not necessary to have the same strong volume, as indicated by B, to sustain the existing uptrend.
OSK – 5053: Remains in short term downtrend.
Chart 4: OSK – 5053 as at 9/03/2011.
As shown on chart 4, since falling below the 14, 21, 31 EMA on the 17th of January, price of OSK has been trending down, and despite a few attempt of rebounds, the downtrend remains intact, with the 14, 21, 31 EMA serving as the dynamic resistance.
After falling for about two months, price of OSK found a support at RM1.60. However, as indicated by A, price of OSK is still resisted by the 14, 21, 31 EMA dynamic resistance. If price should break below the RM 1.60 support, it would be making a 4 months new low, and it would further dampen the weakening technical outlook.
Meanwhile, please note that as indicated by B, volume is usually lower when price is falling. Without sufficient inflow of fresh capital to offset the selling pressure, price of OSK is less likely to break away from this downtrend. Next support is seen at RM1.50.
| 4 Q Rolling PER | 14.18 times | Dividend Yield | 4.41% |
| Dividend | Dividend Yield | Net Profit Ratio | |
| 31/12/2010 | 7.5 sen | 4.36% | 11.62% |
| 31/12/2009 | 7.5 sen | 6.10% | 13.73% |
| 31/12/2008 | 7.5 sen | 7.58% | 16.59% |
| 31/12/2007 | 20 sen | 8.62% | 21.38% |
| 31/12/2006 | 12.5 sen | 6.38% | 23.84% |
Table 3: OSK – 5053, yearly dividend, dividend yield, and net profit ratio.
Conclusion:
"More buyers than sellers, price goes up." This saying is not only outdated, it is totally wrong because in the process of trading, the number of buyers must be the same with sellers. Price changes due to the imbalanced of the buyers' greed and sellers' fear. The act of buying or selling is more emotional than rational. However, buyers and sellers are always in total conflicts, where buyers want to buy as low as possible, and the reverse is true for sellers. Volume marks the number of times of share changing owners, and the higher of the volume, register a stronger memory of price, thus giving a deeper impression that will affect the future price movement.
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