Iris may show the way?

A few clients inquired what would happen to Harvest going forward. To be sure, no one knows. Let's look at what happened to the last stock that was designated- Iris in 2006.

Iris had a strong run-up from RM0.14 in early January 2006 to a high of RM1.38 on May 11, 2006 (Thursday). At the end of that trading day, Iris- which closed at RM1.36- was suspended & designated. Trading recommenced on May 16 (Tuesday) with a drop to a low of RM0.65 before it closed at RM1.00. Iris tested the low of RM0.65 again on May 22. This means that Iris retraced 59% of its gain of RM1.24 (from a low of RM0.14 to a high of RM1.38). When the designation was lifted on June 22 (Thursday), Iris rallied to revisit its recent high. In fact, it surpassed the earlier high by 1 sen (to make a new high of RM1.39). On hindsight, we now know that Iris had made a double top on the re-test of the high.


Chart 1: Iris's daily chart from Dec 1, 2005 to Sep 30, 2006, Overlaid with Fibonacci Retracement (Source: Quickcharts)

On the way down, Iris found support at the 50-day SMA line at RM1.10 on July 14. From here, it staged a small rebound which fizzled out after two days. The drop continued & it broke its uptrend line at RM0.85-0.87 on July 20. By September 8, Iris had declined nearly back to where it started. It closed at RM0.16 that day.


Chart 2: Iris's daily chart from Dec 1, 2005 to Sep 30, 2006 (Source: Quickcharts)

On reading this post, the optimists would say "Let's take a punt on Harvest". In fact, the stock did a decent rebound to close at RM1.20 at the end of the morning session. The warrant has also risen to close at RM0.955. The pessimists would however see the danger in trading this stock as it may drop back to where it started from- RM0.08!

The thing that may set Harvest apart from Iris is timing. Iris's sharp drop & equally sharp rebound coincided with the start of the 2006-2007 bull run. Harvest's current rally happened after the 2009-2011 bull run. Would the current speculative play among the 2nd & 3rd liner stocks help the sentiment for Harvest now? Or, would the designation of Harvest jeopardize the speculative play among the 2nd & 3rd liner stocks? Only time will tell.