Monday, June 06, 2011

Weakness in 2nd & 3rd liners may be a warning

KNM has dropped below the RM2.00 psychological level today. I am sure many KNM shareholders are confused as to why this stock has declined so much after its results announcement which was in no way terribly bad. However, when one looks at the second & third liners which rallied during the CNY period- stocks such as HWGB & KBunai- one would see that they have dropped back substantially. I have attached the charts of these 3 stocks which show reversal or commencement of a downtrend.


Chart 1: KNM's weekly chart as at June 6, 2011_4.00pm (Source: Quickcharts)



Chart 2: KBunai's weekly chart as at June 6, 2011_4.00pm (Source: Quickcharts)



Chart 3: HWGB's weekly chart as at June 6, 2011_4.00pm (Source: Quickcharts)

Some say that the end of a bull market is often characterized by the sell-off in the weaker stocks. With that in mind, I have studied the charts for FBMFLG & FBMSCAP and compared them to FBMKLCI & FBMEMAS when our market peaked in 2008. We can see that the 10-week SMA line for FBMFLG & FBMSCAP cut below their respective 20-week SMA line earlier than in the case of the blue chips index, FBMKLCI or the broader market index, FBMEMAS.


Table: Indices, with dates when the 10-w SMA line cut below the 20-w SMA line

[Note: I did not include in FBMACE because it started in September 2007, which does not have sufficient data for my study].

While it is dangerous to rely only on one observation to support this hypothesis, however reasonable it may seem, we should take it as a warning if we were to observe a similar event again. And, it so happened that the 10-week SMA line looks poised to touch (or, even cut below) the 20-week SMA line for FBMFLG & FBMSCAP. Is this an early warning of the end of the bull market? Let's wait & see.


Chart 4: FBMFLG's weekly chart as at June 6, 2011_4.00pm (Source: Quickcharts)



Chart 5: FBMSCAP's weekly chart as at June 6, 2011_4.00pm (Source: Quickcharts)



Chart 6: FBMKLCI's weekly chart as at June 6, 2011_4.00pm (Source: Quickcharts)



Chart 7: FBMEMAS's weekly chart as at June 6, 2011_4.00pm (Source: Quickcharts)
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6 comments:

  1. VerdictMonday, June 06, 2011 8:05:00 PM

    Dear Alex,

    Did u called to buy citi @ USD48 & MEGB @ 2.12 ?

    I got this from >

    http://samgang.blogspot.com/2011/06/v-didnt-i-told-u-not-2-touch-call.html

    ReplyDelete
  2. Mr LosoMonday, June 06, 2011 10:42:00 PM

    So, do you think this is the end of bull market? Many stocks have back to their 52 months low while some shoot up to highest.

    ReplyDelete
  3. IvanTuesday, June 07, 2011 12:50:00 AM

    time to sell fkli? any idea?

    ReplyDelete
  4. Alex LuTuesday, June 07, 2011 12:17:00 PM

    Hi ronnie,

    Thank you for bringing this to my attention. I replied by way of a post because I think all my readers and the general public deserved a complete & honest answer.

    ReplyDelete
  5. PYSaturday, June 11, 2011 3:55:00 PM

    Hi Alex

    Does this mean HWGB is still heading south in the near term? and what abt longer term?

    Pls comment.
    Thanks

    ReplyDelete
  6. Alex LuMonday, June 13, 2011 12:02:00 PM

    Hi PY

    Yes, HWGB is still heading south in the near term. The immediate support would be at horizontal line RM0.40 & thereafter at RM0.37, RM0.33 & RM0.30.

    For medium to long term, the stock may benefit from successful implementation of its new business of tin mining. Having said that, I am always wary of companies that over-promised but under-delivered. HWGB is one such company.

    HWGB's recent rally could be a flash in the pan as the stock was range-bound for the past 6 years between RM0.15 & RM0.25. If it does not show any result from this new tin mining venture, I would expect the share price to languish thereabout again.

    ReplyDelete