Courts has broken out again...

From Chart 1, we can see that Courts has broken out of its flag formation on the upside at RM0.73 yesterday (January 3). With this breakout, Courts is likely to resume its prior uptrend (or, upward movement).

In addition, Courts has also broken above its medium-term downtrend at the RM0.75 level (see Chart 2). With this, the worst is likely to be over as the stock will either drift sideway or, as noted above, resume its uptrend.

Before taking a plunge into this stock, I must warn of a not-so-present fact. One of the big sellers of Courts shares for the past few weeks has been EPF (or, an EPF-owned fund). Based on the latest announcement, EPF still has 21.2 million Courts shares (representing 7.5% of Courts’ outstanding shares of 282 million). We won’t know how much of these shares are up for sale nor why EPF wants to sell this stock despite a potential General Offer at a price likely to be higher than what it can obtain by selling in the open market. If this selling persists, the stock’s upside potential would be limited. The contrarian may beg to differ.

Chart 1: Courts' daily chart as at Jan 3, 2007


Chart 2: Courts' weekly chart as at Jan 3, 2007

I believe that the future performance of Courts share price will be closely tied to the outcome of the sale of Courts plc's majority stake in Courts. The latest update for the month of November last year has been posted on Courts plc's website. Due to downturn in Courts' financial performance & the need to secure new credit facilities to replace existing facilities (which expired on December 2006) , the focus of bidders has moved from completing the acquisition of Courts to "a hold pattern awaiting more up to date information to reassure them that the current levels of operational performance are improving rather than declining." The timeline for the completion of the sale of Courts has now moved to early 2007. This delay could be one of the reasons why EPF has decided to reduce its position in Courts.

So, we may be tempted to gain entry into Courts based on its bullish breakout but we should also take note that the desired outcome i.e. the sale of Courts plc's stake in Courts might not happen soon. This coupled with the new supply of shares from EPF's selling might cap the upside of this stock.