Chart 1: IOI's monthly chart as at July 17th (source: Quickcharts)
A closer look at this stock may reveal that the share price may have put in a classic reversal pattern, known as the "Head-and-Shoulders".
This very reliable charting pattern (marked on the chart below as the 3 "^") is deemed completed when the share price broke below the "neckline". We can see the break below the "neckline" has happened yesterday at the RM6.20 level.
In addition, one can see that IOI has violated its accelerated uptrend line (the red line) at the RM7.00-10 level about 3 weeks ago. One can also see that a series of lower 'highs' (marked out as H1, H2 & H3) as well as lower 'lows' (marked out as L1, L2 & L3) which indicates that a short-term downtrend has in fact commenced.
The immediate horizontal supports are at RM5.70 & RM5.00 level. Long-term uptrend line support is at RM4.80-5.00. While some may view the RM4.80-5.00 as a possible entry level for a quick trade, one should be very careful in the present situation. The reversion to mean for a stock that broke a 10-year bull run could be so fierce that it would not respect niceties, like technical supports. This is especially so when we are dealing with a stock heavily-owned by foreign funds, who have shown their tolerance for taking losses.
Chart 2: IOI's weekly chart as at July 17th (source: Quickcharts)
3 comments:
"bearish reversal sighted" means turning bullish soon?
Hi totomaster,
A bearish reversal means a change from a bullish uptrend to a bearish downtrend. A bullish uptrend seldom end abruptly, such as a V-spike reversal. It tends to enter into a consolidation phase. This consolidation phase could yield 2 outcomes; a reversal (to the opposite direction) or a continuation of the preceding trend. As noted, Head-&-Shoulders reversal is a reliable pattern & a favorite amongst chartists.
It has the characteristic of a blow-off parabolic rise seen in many second board bubble in 1995-96. It remind me of the REPCO !!!!
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