From the chart below, we can see that the selling has slowly dried up in the past few weeks. In the last 3 days, the stock has experienced a sharp price run-up accompanied by huge volume. Its share price rose from the low of RM3.34 on September 3 to a high of RM5.40 recorded yesterday (September 6). The share price tested the upper channel resistance of RM5.30, but was unable to stay above that level. It closed at RM5.20 yesterday. As at 10.00 am this morning, the share price has pulled back to RM4.90. Is it a good time to buy Tranmil?
Chart : Tranmil's daily chart as at September 6 (courtesy of Quickcharts)
To be safe, we should buy only when the stock's current downtrend is clearly over. That would be when the share price has surpassed the upper channel, currently at RM5.30. Some may have formed their opinion that the worst is over for Tranmil & wish to buy on weakness. In this case, you may buy on a pullback of 33-50% of the recent advance (from RM3.34 to RM5.40) at about the RM4.38-5.06 level. Technically speaking, that is not advisable. A stock in a trending mode is likely to stay in that mode, notwithstanding what the company's management or market analysts may have said about its potential.
alex, can you tell how you see the upper channel (5.30). thanks.
ReplyDeleteThe movement of the share price from June until now is trapped in a downward channel. An upper channel line is drawn by connecting the peaks (in the share price) while the lower channel line is drawn by connecting the troughs. On the appended chart, these channel lines are drawn as black lines.
ReplyDeleteFor more on price channel, go to http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:chart_patterns:price_channel_contin