Stock to Watch: Zhulian [5131]

Given the strong track record of the company, coupled with its high dividend yield, Zhulian will definitely attract the attention of both the fundamentalists and technical analysts as it slides further. We need to be quick in determining the level of which the risk-reward ratio is low enough for us to take a comfortable position before it stages a rebound. To determine this level, we need to look at its supports and resistances (S/R).

While there are many S/R along the way down, our focus would only be on the S/R of major trend (those in black) because of the poor market sentiment. If you are having trouble in identifying major S/R, just convert your daily chart into a weekly/ monthly chart. The S/R that are most obvious to you in your weekly/ monthly chart would be the major S/R.

As we can see in our chart here, the share price is moving down gradually and is about to test the RM2.53 level. RM2.53 should be a strong support given that it has been tested multiple times in the past 1 year (those areas highlighted in pink) and that the distance of the support level from its recent high of RM2.92 is around 39cents, a 13+% fall. In addition to that, the fact that the share price had breached one of its major S/R (RM2.80) during the recent downtrend makes the possibility of it rebounding at the next major S/R level even stronger. Based on statistics, the possibility of a share price rebounding at the second major support after breaching the first major support during the recent downtrend can goes up to 85%.

While unlikely, it is also possible that the share price break below the RM2.53 level and moves toward the RM2.40 level (We need to be prepared for it even though it’s unlikely to happen so that we wouldn’t be panicked if it really does happen). The RM2.40 level is chosen as the third major support level because it is the price where a strong uptrend with high volume began in early October. At RM2.40, the share price is even more lucrative as it represents a 17.8% dip from the recent high. A clean downtrend (with no upward movement in between) that breaks 2 major supports will not only have up to 95% chance of rebounding at the third major support level, but also a high probability of an upward movement with great magnitude.

So don’t freaked out if it really does break the RM2.53 level. Seize the opportunity instead.

Happy observing ;)

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