Ekovest broke above the strong horizontal resistance at RM1.90 on December 29 & rose to a high of RM4.13 in February before correction set in. In mid-March, Ekovest had a bear rally which came very close to the RM4.00 mark before another bout of selling set in. This selldown has carried to stock to its current low of RM2.52. The next strong support is at the RM1.90-2.00 level.
Chart 1: Ekovest's daily chart as at May 30, 2011 (Source: Tradesignum)
We can get a different perspective by looking at Ekovest's monthly chart, plotted on log scale. From Chart 2 below, we can see that Ekovest's share price moved within an inverted semi-circle from 2002 until today. Its failure to break above the near-horizontal line, XY should lead to correction back to the semi-circular line, with support at around RM2.00.
Chart 2: Ekovest's monthly chart as at May 29, 2011_plotted on log scale (Source: Tradesignum)
Finally, you would agree that the retracement in Ekovest has been very significant. The stock rose from a low of RM1.60 in December 23, 2010 to a high of RM4.13 on February 10, 2011- a gain of RM2.53. At the close of RM2.52 today, Ekovest gave back RM1.61 of its gain or underwent a 63.6%-retracement. In Fibonacci retracement studies, a correction with retracement of 33% to 66% is normal & acceptable. Any retracement beyond 66% would raise serious doubt about the prospect of recovery. Ekovest is very close to the maximum retracement before investors throw in their towels.
As such, Ekovest is worth close tracking. Should we buy the stock now after a sharp fall or should we wait for the test of the RM1.90-2.00 support? If the stock were to drop to the RM1.90-2.00 support, the stock is a damaged good with poor prospect of recovery. Those holding the stock are in a very unenviable position- to hold or not to hold? There are many stocks that are putting investors in similar predicament. A River Runs Through All of Them: the River of Greed & Fear.
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