Tuesday, September 06, 2011

E&O- an exciting technical play developing

The recent proposal by Sime Darby to acquire a 30%-stake in E&O from three major shareholders could trigger a MGO. This argument arises because Sime & the three vendors have structured the deal, with clear intention of avoiding a MGO whereby the three vendors would continue to hold a combined stake of 12% in E&O after the deal while disposing off a combined stake of 30% to Sime at a price signifiantly higher than the prevailing market price. One can construe from the structure of the deal as well as the pricing thereof, that Sime has gained management control of E&O. For more, go here. The proposed acquisition of the 30%-stake in E&O is priced at RM2.30 per share.

Whether SC would agree with this interpretation or not, we won't know. From the weekly chart, we can see that E&O has been tracing out a Cup with Handle formation. The Handle takes the form of an inverted triangle or a Loud Hailer formation. If E&O can break above the RM1.80 level, E&O could hit a target price of RM2.30 (which is arrived at by adding the depth of the Cup of RM0.70 to the brim at RM1.60). Hi, that number looks familiar!


Chart 1: E&O's weekly chart as at Sept 6, 2011 (Source: Tradesignum)

Ignoring the uncertainty surrounding the Sime deal, we can see that E&O could potentially hit a high of RM3.20 in an extremely bullish scenario. Alas, this scenario will never come to pass.


Chart 2: E&O's monthly chart as at Sept 6, 2011_plotted on log scale (Source: Tradesignum)

For the gung-ho traders out there, this high-risk trade may be very tempting & hard to resist. Good luck!
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3 comments:

  1. DJ MaxTuesday, September 06, 2011 10:51:00 PM

    I think tomorrow might have a technical sell down because of clearing margin. But sentiment could continue to be strong, and ability to touch RM2.00 is possible if SIME had maintained the RM2.30, with no MGO triggering or whatever disturbance in between

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  2. Alex LuWednesday, September 07, 2011 9:09:00 AM

    Hi Bonescythe

    If it failed to surpass the RM1.80 level, it will probably undergo some correction. Its immediate support is at RM1.73 & then RM1.70.

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  3. DJ MaxWednesday, September 07, 2011 10:29:00 AM

    Support will be at 1.70 I think. But I think it can go down further, breaking 1.70.

    For collector, it will be a good point to collect below 1.70. Probably around 1.65 will be a good collection spot. Just my opinion though.

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