Chart 1: KLCI as at 22/3/2011.
As indicated by A, the KLCI rebounded from the 1474~1480 support, and now testing the 14, 21, 31 EMA dynamic resistance. Meanwhile, total market volume started to increase, and if volume could break above the 40-day Volume Moving Average, and the KLCI breaks above the 14, 21, 31 EMA, the KLCI would have a better chance to break away from this weakening trend.
Understanding Volume (End)
Last two weeks, we mentioned the relationship between price and volume, including the numbers of sellers and buyers must be equal, et cetera. We will conclude the last portion of volume and price relationship in this article.
C: Price fall with low volume:
When price fall with lower volume, it means that the stock is most likely trending down or staying in a weakening consolidation. When the market is quiet, when most investors are staying on the sidelines, and at the same time, the market is lack of good news to stimulate the market sentiment, stock price is less likely to go up. Therefore, one should learn to identify these characteristic, and if volume should trend down with low volume, together with formation of lower-highs, it is best to avoid this downtrend.
Chart 2A: Price fall with low volume.
D: Price fall with strong volume.
Generally, when the market is hit by major negative news, stock price would fall with huge volume, and this is what we called a panic selling. When sellers are so afraid that they don't mind selling their stocks at lower price, they would quickly sell their stock to the the buyers at the next buyer price. These panic selling activities are usually short-term, but they will certain have an impact to the stock trend and investors confidence.
Chart 2B: Panic Selling with huge volume.
E: Price stopped rising, while volume remains strong.
This is different from panic selling, where the panic selling is clearly visible, but as shown on chart 2C, when price stopped rising and volume is still strong, it implies that the stronger hands are off loading their shares to late comers, or the weaker hands, and this is usually not obvious, in fact, rather hard to notice. One should ask, if there are such strong inflow of volume (fresh capital), why wouldn't the sellers ask for any premium? Why must the sellers rush to sell their stocks?
Chart 2C: Price stop rising, volume remains strong.
This week's Case Studies:
Pchem – 5183: Uptrend remains intact.
Chart 3: Pchem – 5183 as at 22/03/2011.
As shown on chart 3, price of Pchem was resisted by the RM6.80~RM 6.83 resistance, and entered a sideways consolidation. Despite the resistance, the uptrend of the Pchem remains intact, while the 14, 21, 31 EMA is still serving as the dynamic support of the uptrend.
Technically, as long as price of Pchem could stay above the 14, 21, 31 EMA, investors could choose to hold, provided that he or she should lift the cutloss or profit taking level according to the 14, 21 ,31 EMA level, this will gradually reduce trading risk.As for those whom are interested in taking up new position, it could be viewed as a buy signal if price should break above RM 6.80~RM6.83 resistance, and apply the 14, 21, 31 EMA as a trailing stop reference after entering. Of course, the break out should be accompanied by strong volume.
DIALOG – 7277: Testing Resistance.
Chart 4: DIALOG – 7277 as at 22/03/2011.
As shown on chart 4, price of Dialog was affected by the recent incident in Japan, as a form of a technical correction. However, price of Dialog remains above the 14, 21, 31 EMA dynamic support, and this means that the uptrend remains intact. For those whom are already in position, he or she could choose to hold, as long as price of Dialog remains above 14, 21, 31 EMA.
Meanwhile, as indicated by A, after being supported by the 14, 21, 31 EMA, price of Dialog started rising again, and now set to test the RM 2.36~RM 2.42 resistance. If price should break above the RM2.36~RM2.42 resistance, it would be making a historical new high. If the break out should be accompanied by strong volume, there is a good chance that the uptrend would prolong, with positive technical outlook.
| 4 Q Rolling PER | 34.75 times | Dividend Yield | 1.35% |
| 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.
JCY – 5161: Remains in downtrend.
Chart 5: JCY – 5161 as at 22/03/2011.
As shown on chart 5, price of JCY rebounded last week, after being supported by the RM0.575 ~ RM 0.585. However, it is still testing the 14, 21, 31 EMA, which is still serving as the dynamic resistance. Technically, as long as price of JCY is still staying below the 14, 21, 31 EMA, the technical outlook for JCY shall remain weak. Furthermore, with the lower market participation, chances of a reversal is still slim.
Theoretically, the most ideal buy signal, is when price breaks above the 14, 21 ,31 EMA, and then forming a higher-low. On the contrary, if price should remain resisted by the 14, 21, 31 EME, and later break below the RM0.575~RM 0.585 support, it would make yet another new low.MEDIA – 4502: Short term downtrend remains intact.
Chart 6: MEDIA – 4502 as at 22/03/2011.
As shown on chart 6, since breaking below the 14, 21, 31 EMA on the 25th of January, price of Media has been staying below the 14, 21 ,31 EMA, thus the short term technical outlook for Media remained negative. Price of Media was supported by RM2.20 in the beginning of March, but after rebounding from RM2.20 support, price of Media is now testing the 14, 21, 31 EMA as indicated by A.
If price should remain resisted by the 14, 21, 31 EMA, and started falling again, it would form another lower-high, which suggests that the downtrend is still intact. If price should break below RM2.20 support, it would be making a near 6 months new low, and by then, it would trigger more selling pressure.
Technically, as long as price of Media is still resisted by the 14, 21 ,31 EMA, then investors should stay away from this counter, until a valid break out above the 14, 21, 31 EMA. If price should break above the 14, 21, 31 EMA, and later forms a higher-Low, it could be a positive reversal signal.
| 4 Q Rolling PER | 8.95 times | Dividend Yield | 4.33% |
| Dividend | Dividend Yield | Net Profit Ratio | |
| 31/12/2010 | 10 sen | 4.18% | 16.45% |
| 31/12/2009 | 10 sen | 5.24% | 26.18% |
| 31/12/2008 | 25 sen | 22.52% | 11.01% |
| 31/12/2007 | 0 sen | 0.00% | 16.98% |
| 31/12/2006 | 0 sen | 0.00% | 15.05% |
Table 2: MEDIA – 4502, yearly dividend, dividend yield, and net profit ratio.
Conclusion: The above examples of case studies reinforced an important idea, which is to follow the trend. Trying to buy low during a downtrend is not the way. The idea of buy low sell high is easy to accept for this is human nature to buy things cheap. However, the prices of a stock trend is not governed by common sense, and this explains why we generally say that a few winners takes all the profit from most losers, because only few could make it.
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