Stock-to-Watch: UEMS [5148]

A bad ending it was for the month of July as the market extended its losses by another 22.46 points, after Fitch’s revision of Malaysia’s outlook prompted foreign investors to liquidate their holdings in Malaysia. To-date, the market had suffered a blow of around 40 points since 24th of July, the day our market closed at a high of 1810. This is the perfect opportunities for us to grab some of the fundamentally good stocks at favorable price, so don’t fret.

klci (6)

While the market is still in its downtrend and there is no clear sign of reversal yet, I’m seeing opportunities to profit from the inevitable rebound already since reflexivity is at its high side now. The selling that began last week prompted more and more panic selling and the vicious cycle continues until the end of today’s trading session. If you understand the Theory of Reflexivity, you should know that when it is at its high side, the market shall move in the opposite direction very soon. In fact, absorption (which means demand) can be seen in some of the index heavyweight today as foreign selling pushed the price to attractive levels (check-out the crazily high volume at some price levels). With demand coming in aggressively, my guess is that the market will stage a rebound either tomorrow or the day after tomorrow and the better sentiment will lift share prices along. My proprietary sentiment analysis that I taught in my workshop had also shown a “buy” signal today, meaning it’s O.K. to bet on shares now (temporarily, at least).

What shares to take advantage on then?  Blue-chips or mid caps that were beaten down badly in the past few days of course. And among them, my favourite (as judged by its movement, and not any fundamentals) is UEMS, our property giant. Let’s look at the chart.

uems

The share price of UEMS had fell gradually since the end of May after it closed at a high of RM3.62. To-date, it had loss close to RM1 or around 27% in value in just 2 months. Now, the drop in price is not the reason why it’s attractive because share price can always go lower and lower. The reason is on the WAY the price move. A downward movement of such magnitude will not continue for long without a meaningful rebound in between given that it’s an index contituent (actually, the rule works on other shares as well, but it works best on blue chips). If you look at the chart, you will notice that the share price of UEMS could hardly break and stay above it’s support-turned resistance during the downtrend. Pullbacks happened but were not strong. It looks like the bulls are saving energy for bigger battles. Using the same rule, but on shorter time frame, we can say that the share price of UEMS had dropped too much in too short a period of time recently, after breaking below the ascending triangle pattern (>13% in 1 wave – a quantitative rule if you are looking for a number to help you judge*) and a rebound is imminent. The extremely high traded volume today provide us with an indication that today could be a selling climax and that the share price will rebound tomorrow. Please be mindful that we are attempting to profit from the inevitable rebound and are not planning to take a medium- or long-term position here as the trend is still a down one.

*This is not a hard and fast rule. It works depending on several factors such as the reason for the movement, the current stage of the share and the latest sentiment.

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