Genting to test its main trend line at RM7.00

Genting has a good run since bottoming out at RM3.10-20 in March. After an initial sharp rally off the low, the share price rose steadily in an upward channel (or, bullish price channel) from May onwards [see the two parallel pink lines in the chart below].

The correction in the past 3 weeks has brought the share price to the lower boundary of the channel (or, the main trend line), at RM7.00. This should be a good support level and one can expect a rebound. There is a possibility that the main trend line may be violated. This is based on the following observations:
1. Since May, we can see that two indicators, MACD & RSI have exhibited bearish divergence against the rising price.
2. The 10-day Simple Moving Average ('SMA') line has cut below the 30-day SMA line for the first time in the present rally.
3. The preceding reaction high in October fell short of the upper boundary of the channel (or, the channel-line), which indicates a loss of momentum.

Over the next few days, we will see whether Genting can rebound or break the main trend line. If the latter scenario panned out, it is advisable to reduce your position in this stock.


Chart: Genting's daily chart as at Nov 11, 2009 (Source: Quickcharts)

I prefer Genting Malaysia ('GENM') to Genting or Genting SP.

Note: In the past, I used to refer to price channels as either upward or downward channels. I have also used the terms "lower or upper boundary" whereas the proper terms are Main Trend Line & Channel Line. See the definition below, as per Stockcharts.com.

1. Main Trend Line: It takes at least two points to draw the main trend line. This line sets the tone for the trend and the slope. For a bullish price channel, the main trend line extends up and at least two reaction lows are required to draw it. For a bearish price channel, the main trend line extends down and at least two reaction highs are required to draw it.
2. Channel Line: The line drawn parallel to the main trend line is called the channel line. Ideally, the channel line will be based off of two reaction highs or lows. However, after the main trend line has been established, some analysts draw the parallel channel line using only one reaction high or low. The channel line marks support in a bearish price channel and resistance in a bullish price channel.