Stock to Watch: MHB [5186]

Before we perform a thorough analysis on the price development of MHB [5186], lets take a brief look on the general market movement. As can be seen from the chart below, the index is still moving within the sideway channel (or in a rectangle). Market was weak in the morning, dragged by the poor performance of the regional market, but began to recover in the afternoon session and managed to close just below its opening, thereby forming a doji. With buyers coming in everytime the market touches the 1766 support level, it is hard to tell at this point whether the bull or the bear will triumph in the coming weeks. We need to watch the upper and lower boundaries of the sideway channel closely.

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Nothing much to talk about the composite index. Let’s focus our attention on MHB instead and look at what happened recently in order to get a good grasp of the big picture and to find out how we can take advantage of the price movement of this stock. MHB is a very interesting stock to trade given its volatility. The share has been on a 2-years downtrend, falling from its high of around RM8.70 to its recent low of RM3.14. On the last day of May (indicated by the green arrow), the share dip lower with extremely high volume, giving us a bullish signal, as it indicated a possible reversal. This is what we call a selling climax under V.S.A. (Volume Spread Analysis), where the demand comes in and absorbs the huge supply (although the transactions are somewhat “created” in Malaysia but let’s leave that issue for another day).

True enough, share price rose for 3 consecutive days after the selling climax and touched the support-turned resistance of RM3.75 before moving lower. Notice the huge doji with high volume formed on the 5th of June. Such a pattern, when supported by volume is a good indication of possible reversal. If price move lower than the doji’s low, then the reversal is confirmed. The signal is the same if one were to use V.S.A. in his analysis, as a close below the middle of the day range with high volume means possible buying climax. Now, what happened on the 2 days following the formation of the huge doji provide us with a very valuable information. The retracement that was expected to happen did occured and share price of MHB moved lower on LOW volume (indicated by the red arrows). This suggests that the minor downswing is weak, or funds are not selling their holdings yet, which make the share bullish. The price development in subsequent days following the retracement are, however, not convincing despite the fact that lows are getting higher. Well, its understandable since the general market is not performing so well. Trades are concentrated in a tight range, allowing the triangle pattern to form nicely. Given that MHB has been on a long-term downtrend and that the recent transacted volume were ridiculously high at the current price levels, we could be seeing the start of a long-term uptrend, and thus this might be the last chance to buy at a lucrative price. Once the share price break above the triangle, the probability of it moving up is higher and therefore it’s a buy (It would be best if it is supported by volume as well).  Though not advisable, risk loving trader can speculate on a possible big run and buy some shares before it breaks above the triangle. Keep your stop loss tight and do trade cautiously.

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