The composite index edged higher today with oil and gas counters getting most of the attraction (Perdana, Penergy, Alam, and Dayang). Looking at the current market sentiment, the index is expected to stay strong and will re-test the 1793 resistance level again in days to come.
The focus of today’s discussion would be on GAB , a brewing company which had dipped by more than 20% from it’s highest high in just a month. Investors who kept on adding their position as the share price eased are now worrying that their decision to buy could be a huge mistake. If you fall into this category of people, let me assure you that the share is about to rebound very soon. So don’t fret. As for the others who are looking to take a position… let us look at the chart first.
We begin our analysis from the first day the share price loses its ground, which is on the 21st of June 2013. The selldown did not come without a signal as a huge distribution bar with substantial volume was formed on the 21st of June (second red arrow). Technical traders would have get out of their position when they see this. In fact, the first sell signal appeared on the 11th of June, when a new high was created but the share price closed way lower than it’s opening price (first red arrow). After the second “sell” signal appeared, price of GAB’s share crashed on the subsequent day, bringing it lower to the resistance-turned support level of RM18.90. At this level, the share did rebounded a little but was weak since it was not supported by volume. Soon, a bearish pennant was formed and a break below the tip of the flagpole meant that the bear will continue to dominate for a while.
Alright then, why am I bullish on this stock? First and foremost, according to the Law of Rhythm, shares have to move in wave (at least the majority of them). Regardless of how bearish a stock is, there will be few corrective waves (uptrend) along the downtrend. For GAB’s case, a meaningful correction is yet to be seen on a 20% downtrend thus it is very likely that a rebound will occur any time soon. Secondly, if you are a disciple of Gann, you will see that the rate of change of the second downwave slows down substantially, which means that a reversal is around the corner (The rate of change here is different from the ROC under the family of technical indicators). Thirdly, the share had pierced through 2 major support levels in a month. When you see a share, especially a fundamentally solid one, breaks through two major supports in one wave, you can be sure that the rebound is around the corner and the magnitude of the rebound will not be low. Fourthly, my proprietary trading tool, RVD shows sign of accumulation already. If you look at today’s transaction, bulk of today’s volume is focused on one price level. This is a sign of possible bottom when it appears at the end of a downtrend.
O.K. What level to buy then? The “margin of safety” is suffciently great now, so long-term investors could start accumulating at price below RM17.70 all the way to RM17 (the area highlighted in green). RM17 is another resistance-turned major support level and we should see the bull awakes around that price level. Traders with shorter-term horizon should wait for more concrete signal (reversal candlestick pattern, possibly at RM17) before participating. For longer-term horizon traders, it would be best to wait for the stock to re-test the latest low that is expected to happen before making their purchase. In other words, longer-term traders should see that no lower low is formed and a higher high is made before going in. That would be safer.
If you are looking for a share that has got potential but has yet to move, I would suggest Malton. Read the detail analysis here.
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Enjoy the read