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?

We began our analysis by looking at the short-term downtrend that started on the 17th of January after hitting its 1-year high of RM1.29. Not only that the downtrend is sharper, but its magnitude is also stronger compared to other corrective waves that we can see along the uptrend. This, according to Gann, is the first sign of a possible long-term trend reversal. At this juncture, we should expect the subsequent rally to be short-lived, forming either a lower high or at best a double top (both of which are bearish signs). Indeed, after touching its major support at RM1.04, price reversed and formed a lower high before retesting it’s high of RM1.28 again. At this point,  the rule would be to buy the breakout should it occurs. If it does not, price should turn down and form either a higher low (bullish) or a double top (bearish). Some technicians included the unusually high traded volume that happened on the 28th of February in their analysis and concluded that a reversal is to happen since it was not followed by a sharp spike in price. Such additional detail is relevant but not very helpful since it will not alter our trading rules. But the very same information is extremely useful in making our price prediction on the 8th of March. Let us first look at what happened on the 28th of February.

perdana tradedetail
Despite the high volume, shares are not moving much, suggesting an exchanging of shares between 2 funds at a tight range (RM1.28 and RM1.29). A detail check on the daily stock price movement revealed that more than 80% of the traded volume happened in just 1 short hour. This is somewhat ridiculous given that the volume traded on that particular hour is 8 times more than the average daily traded volume and is 24 times the highest bid/ ask queue. This essentially means that a new “base” is built at RM1.29/RM1.28 and the share is poised to make a move. However, there is a possibility that the person behind the acquiring fund may have other plans. He may want to let the price fall further so that he could average down before pushing the price up again. If the fund’s plan is to let the price fall, price would move substantially lower and aggressive buying could be seen at lower prices. Since we do not know what the fund is up to, we have to rely on the price development on the subsequent days to tell us.

The price development in the past 1 week had shown that the acquiring fund is not planning to average down because (1) Perdana’s price merely retraced to the Fibonacci 23.6% level and (2) instead of moving down, green bars (on the 5th & 7th of March) were seen after the formation of doji (on the 4th & 6th of March). Thus, a breakout with great magnitude (due to its high accumulated volume at price RM1.29/ RM1.28) should be around the corner and we could seize this opportunity to profit.

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