Padini [7052]: Ready for a Huge Directional Move

Padini’s year-long uptrend was broken in September and had been on a downtrend since. The wide swings during the downtrend offered a number of opportunities to believers of short-term mean-reversion and experts in candlesticks pattern. The downtrend ended in early December after completing the falling 5-way sequence of the Elliot Wave and it’s share price has been moving sideway since.

The range which the share price has been trading for the past 3 months is tightening slowly and is converging at around the Fibonacci confluence zone of RM1.82. This is not surprising given that Fibonacci confluence zone, being the price level where multiple Fibonacci ratios align, has always been the level where price equilibrates in the medium term. The price movements of Padini for the past 1 year have successfully form a D-shape, which according to Robin Mesch signals the end of a cycle of market activity and the beginning of a new one. This essentially means that the share price is poised to make a huge directional move and it is expected to happen anytime soon given that price has been moving sideway for 3 months. Such time prediction is in accordance to Gann’s observation that “majority of trends occur in time period of 3 (3 days, 3 weeks or 3 months)”.

The directional movement should be an up one because one of the funds involved has been acquiring Padini’s shares aggressively over the past 3 months. This can be seen from the increased in transacted volume in a number of days since early December. Looking at my proprietary Relative Volume Density (RVD) chart below, we can see that the traded volume is concentrated at the RM1.81 to RM1.85 level. This gives us a good hint on the short-term average price of the fund’s holding. The RVD chart also reveals the higher equilibrium levels which the price is expected to test before moving to greater heights (RM1.89 being the implicit resistance, and RM2 being the psychological resistance).

Padini's RVD
At the moment, the coming general election is my only worry as the announcement of parliamentary dissolution could potentially send the stock’s price down below RM1.70. As long as the price stays above RM1.70, I shall remain my bullish stance and take any short-term price decline as a temporary divergence from its equilibrium which will revert thereafter. Longer-term traders who have the holding power may consider participating at any price from RM1.81 to RM1.85 and accumulate more in the event if price moves slightly lower while weaker holders may want to wait for the general market sentiment to recover before participating in it. Supports are at RM1.80, RM1.75 and RM1.70 respectively.

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