Thursday, June 09, 2011

Bstead may have a bullish breakout

Bstead broke above its 'rising wedge' at RM6.25 today (see Chart 1). The volume is sharply higher than normal. In fact, the volume picked up over the past 2 days, which is supportive of an upside breakout. With this breakout, Bstead could potentially rally to test the line connecting its high over the past 18 years (at RM7.00). See Chart 2 below. Based on the technical breakout, Bstead could be a good trading BUY.

My main concern regarding this breakout is that it came on the heels of the issuance of Bstead-CB, a new CW based on Bstead share issued by CIMB. The issuance of a new CW tends to give the underlying share a short-term lift. I am not sure how this phenomenon came about. I would not pin this on any issuer. It is probably an activity driven by market participants based on expectation & historical behavior. At this moment, we would not know whether the current breakout in Bstead is due to this phenomenon or is actually a genuine breakout. We can either wait & see or put our money at risk & ripe the reward. If you choose the latter, you are well-advised to set your protective stop. Good luck!


Chart 1: Bstead's daily chart as at June 9, 2011_11.45am (Source: Quickcharts)



Chart 2: Bstead's monthly chart as at June 9, 2011_plotted on log scale (Source: Tradesignum)
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8 comments:

  1. nealThursday, June 09, 2011 3:45:00 PM

    Perhaps, the issuer purchases the shares as a hedge to their issuance of the CW. Isn't it great that the banks can essentially short the securities which they issue CW's on but the public cannot. Level playing field? NOT!!

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  2. limchohooiThursday, June 09, 2011 4:02:00 PM

    1st resistance = RM6.75

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  3. Alex LuThursday, June 09, 2011 4:32:00 PM

    Hi limchohooi

    How did you arrive at that figure?

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  4. Alex LuThursday, June 09, 2011 4:46:00 PM

    Hi neal

    You raised two issues:
    1) the issuer purchases the shares as a hedge to their issuance of the CW.

    They call this dynamic hedging but I think it doesn't make good sense. If you issue a CW and then you buy the underlying share in the market to hedge, you are doing wrong. It is like a dog chasing its tail. You should be buying ahead of the issuance, which would cause the price of the underlying share to rise & then you issue the CW. You would get a higher premium and you can take comfort in knowing that the share price should ease off once you release your foot from the paddle. The unfortunate thing is that a lot of CW buyers would be caught out. Sad, is it?

    2) Isn't it great that the banks can essentially short the securities which they issue CW's on but the public cannot.

    Well, in U.S. you can write call options which is essentially the same as CWs. Maybe, one day we can do that in Malaysia.

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  5. limchohooiThursday, June 09, 2011 8:58:00 PM

    2003 low = 0.92
    0.92 x 7 = 6.44 (Gann Theory)
    0.92 x 7.333 = 6.75 (1st resistance)If > 6.44

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  6. solomonThursday, June 09, 2011 10:02:00 PM

    What is your take on twscorp?

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  7. Alex LuFriday, June 10, 2011 6:08:00 PM

    Hi limchohooi,

    I don't get your computation. I must admit my level of knowledge of Gann is rather shallow.

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  8. Alex LuFriday, June 10, 2011 6:10:00 PM

    Hi solomon

    I am not familiar with twscorp. All I can say is that the stock is in an uptrend line, with support at about RM0.80 while its resistance is at RM1.10-1.15 (based on the line drawn to connect the high of the past 2 years).

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