Monthly Archives: March 2013

KLCI: Preparing for The Second Quarter of 2013

klci april fool
The aggressive buying by foreign funds last week had pushed our local index higher by a staggering 50 points. It stopped rising at the point where the horizontal major resistance of 1679 crosses the upper trendline of the upward channel, which coincidentally is also the Fibonacci 123.6% level of the prior uptrend. Such bold acquisition by foreign funds are partly due to the pressure arises from the poor performance of their portfolio in our market. If the index was to stay at 1625, foreign funds would have made a negative return of 3% for the first quarter of 2013, calculated from the closing price of 2nd of January 2013. By pushing few of the heavyweight of our KLCI higher (thereby causing the index to close at around 1672 on Friday), foreign funds that have exposure to our local market will only make a marginal loss of 0.2% (All the calculations above are done by assuming that the average return of all the portfolio of foreign funds are similar or close to the market return).

Moving on, the index is expected to consolidate or retrace to a lower level in the near term before rising further. As long as the index stay within its upward channel, the outlook is still bullish and any retracement that comes should be taken as a buying opportunity. We will continue to see lots of volatility in the second quarter of 2013, which represent more opportunities for profit for professional traders. For amateurs however, it would be advisable to trade the big trend and ignore the minor swings in between. Hopefully, we will see a better trading environment for the retailers in the second quarter of 2013.

A Short Seminar in UCSI

I was honored to be able to speak in UCSI’s Professional Pathway Day on last Saturday, 23th of March, of which a total of 107 students attended it. In the seminar, I revealed to the students a few psychological biases that cause the failure of many in investment. These, among all, include Apophenia (illusory correlation), confirmation bias, availability heuristics, consistency bias, normalcy bias and representative heuristics. While these biases aid us in dealing with the ever-increasing information that is surrounding us, they are exactly the reasons why most people fail in investment, despite being able to keep their emotions aside when making financial decisions. These biases distort the thinking process of human being, causing our rational analysis to be somewhat irrational without us realizing it. If you are interested in knowing more about these biases, do come for my coming free public seminars (The details of the events will be posted here, so do follow my post closely). Alternatively, you can wait for my detail write-up on these biases, which is expected to be released in May or June.

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KLCI: Strong Push by The Foreign Funds

KLCI (3)
It has been some time since we last seen our index soar by more than 15 points. After closing lower than its opening for 2 days on high volume, the local index rose by 17 points and stopped near the immediate resistance of 1645. The hike in our index was caused mainly by the aggressive acquisition by foreign funds. They had, according to statistic, made a net purchase of 326million shares today. If the index manages to break above 1645 again, then the low created on the 18th of March would be the cycle low, and we would see the index forming an arc in the next one and a half-month. As long as the index stay above the trendline, the arc should be a bullish arc, meaning the end of the arc would form a higher low compared to the beginning of the arc. Looking at the current situation, it is definitely risk-on for investors although the ratio of gainers to losers for the past few days are not satisfying.

Genting [3182], GENM [4715]: Trading the Swings

Genting and Genting Malaysia (GENM) are two KLCI constituents that are famous for their volatility. The recent fall in their share prices had created more opportunities for us to profit from the swings. Let’s start our analysis by looking at the price development of GENM’s share.

GENM
It is obvious from the day chart that the share price is heading south. The creation of lower highs over the past few weeks, coupled with the fact that it breached the uptrend line connecting the 4 obvious lows just few days ago, supports the argument that this share is in a downtrend and thus market participants should avoid trading this share. Such an interpretation is technically correct but fail to take into account the big picture. If we look at the price movement of this share over the past two years (see chart below), we will realize that the share price is trading within a wide range (RM3.20 – RM3.93. We do not use RM4.12 as the upper limit of the trading range because the price did not stay above RM3.93 for long. It is better to consider it as a false breakout) and the trading range is narrowing slowly over the years and has been concentrating at around RM3.30 to RM3.77 for close to a year. In the middle of this trading range we have the RM3.52 level which has been tested as supports or resistances (S/R) for close to 10 times. This strong S/R level can be seen as separating the trading range of this company’s share price into 2 smaller trading ranges (RM3.30 – RM3.52, and RM3.52 – RM3.77).

The Hot and Sizzling Property Sector

Property shares have been in the limelight for almost a quarter and most have sky-rocketed to a very dangerous level. At this stage, the risk-to-reward ratio is definitely at the high side and we should not chase after these stocks. Having said that, there are still plenty of opportunities to profit from the swings. We shall look at the current situation of a few property stocks from the technical point of view and see how we can attempt to profit from them in the near future at low risk. Let’s start our analysis with Tebrau [1589].

tebrau
After moving within an upward channel for close to 2 months, Tebrau’s share price managed to break above the the ascending broadening wedge with high volume on the 15th of March, sending the share sky-high in subsequent days. Despite supported by volume, its share price has moved too much in too short a period (an average of 7% a day for the past 5 days), making a correction very likely in the near term. The correction that follows should be one of high magnitude since a parabolic movement can be clearly seen in Tebrau’s share price. Reflexivity is obviously at work and any slight uncertainty will trigger the first batch of selling, which will create fears in others to take profit or to cut loss, thereby reinforcing the downward movement. The uptrend could continue for a day or two, but at this juncture the risk is much higher than its reward and thus interested party that are looking to take a long position should refrain themselves from joining the herd in the next 2 days. Remember, losing the opportunity is always better than losing the money. Do not bet on overbought shares, thinking that they would the next big thing. The best strategy now would be to enter only after the share price has retrace to a much lower level, possibly at the 50% retracement level of the most recent up wave, or at RM1.05, a major support level. Next, we take a look at KSL [5038].

KLCI: A Change in Free-float Methodology

KLCI 18 mARCH
Our KLCI sank deeper today after news of EU leaders taxing bank deposits in order to part-fund the bailout of Cyprus created renewed worries among investors worldwide. This came after a huge sell-down on the last 10 minutes of the trading session on Friday, believing to be due to portfolio rebalancing by funds that track the performance of our index as the methodology used in calculating the weightings of the index constituents will be changed effectively on the 18th of March. The shocking moves by EU leaders, coupled with the election fear that has been lingering since late January, is expected to send our CI lower to test the 1600 psychological support again. While our index is moving into the oversold territory and today’s candlestick is forming a long tail, indicating a possible reversal, we should be mindful that the sentiment is weak currently and any release of unfavourable news might bring our index to a lower low. Do trade cautiously.

Stock to Watch: KSL [5038]

KSL

Why is it that KSL is attractive on the 13th of March when it is trading at such a high price compared to the past few months? In making our analysis on this property company, we shall employ day-to-day bar analysis as well as candlestick pattern. We start from 7th of March, when price shot up and closed above RM1.75 with high volume, indicating bullishness. The day after, a doji with long tail is formed, reflecting a possible reversal. For a reversal to be confirmed, the share price must close below the immediate support of RM1.75 in the next few days. On the 11th of March, the share price opened higher and closed lower at the immediate resistance, making the reversal very likely. At this point we should be expecting another black candlestick on the next day that will bring the share lower and thus confirm the downtrend. But instead of moving down, it moved up and managed to close near the high on the 12th of March. This price development that went against the expectation signaled a possible continuation of trend. The bullishness is further supported by its ability to not just stay above the immediate support of RM1.75 but also closed near its high on the 13th of March, when the broad market shed more than 10 points. Let’s check its relative volume density (RVD) as well.

PPB [4065]: The Forgotten Giant

The share price of this KLCI constituent was hammered since last year due to the expected short-term poor performance of its 18.3%-owned associate, Wilmar, which contributes more than 50% of PPB’s earnings. After moving slightly lower than its book value in the end of December 2012, interests in this share started to kick-in and price began to move upward with high volume.

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KLCI: Testing the 1660 Resistance

fbmklci
After breaking above the downtrend line on the 28th of February, our local index has been rising steeply, breaking through several resistances. Despite seeing some weaknesses in the general market sentiment today, our index managed to move up and test the 1660 resistance. Moving on, if the index manage to break the 1660 resistance in the coming days, it should continue its uptrend and move up to test the 1680 resistance. Immediate support is at 1650.

 

Stock to Watch: Perdana [7108]

In this article, we shall take a look at Perdana Petroleum and explore how we can utilize all available past data in making price prediction. The focus would only be on the price prediction from 8th of March onward and we shall ignore all other entry and exit signals that had appeared in prior weeks.

perdana1

So what are the possibilities ahead? We can see the recent price development as a possible double top, which is not surprising given that the share price has rallied by more than 100% in the past 9 months. Alternatively, we can see the retracement in the end of January as a necessary correction for the share price to move higher. Which is more likely to happen?