Airasia hit an air pocket!

Airasia plummeted in the past 3-4 days from RM3.40 to an intraday low of RM2.82. The sharp drop was prompted by concern that the new LCC, Malindo could be a threat to its operation. In my opinion, any LCC will take away some business from Airasia. However, we have seen many rivals folded up or struggling to breakeven in this cut-throat business. As such, the selldown in Airasia is excessive, bordering on irrational or emotional.

Technically speaking, Airasia has broken its uptrend line, SS which stretched back to March 2011. That breakdown happened in late August at the RM3.50 level. The past 4-day selldown is excessive in two areas:
1. The volume is equal to that registered in the selldown in August 2011 (denoted as 'A'). Such huge volume would create a vacuum, which allows an opposite move to take place.
2. The drop was also excessive in that the indicators, such as MACD, RSI & ADX, all went plunged sharply. Again, we can see that the last time these indicators moved to such extreme (in September 2011), the stock then enjoyed a rebound (denoted as 'B').

Based on these two reasons, I believe that Airasia could be set for a rebound. The rebound could bring the stock back up to RM3.20-3.30.


Chart: Airasia's daily cahrt as at September 13, 2012_3.00pm (Source: Quickcharts)

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Airasia.