E&O- Any suit will do?

E&O is rallying today. At the close of the morning session, it was at RM1.49- up 8 sen from the close of RM1.41 yesterday. If we ignored the two big dips in December 2008 & March 2009, we can draw an intermediate uptrend line with support at RM1.30. Its long-term downtrend line will pose resistance at RM1.60. E&O tested its uptrend line in November 2011. Now, it is likely to continue to rise & it may test its downtrend line at RM1.60. Can it break above that resistance?

Readers may recall that a minority shareholder had filed a suit against Securities Commission for failure to compel Sime Darby to undertake a general offer when it bought a 30%-stake in E&O from three substantial shareholders at a price of RM2.30 a share. That price was substantially higher than the market price then and since it gives Sime Darby management control of the company, there is ground to argue that Sime Darby should make a general offer. Is E&O rising because of that suit? For more on the suit, go here & here.

What I can say is that the sign of a possible rally was flashed out by the market action for the three CWs- E&O-CA, E&O-CB & E&O-CC. We saw huge volume traded over the past two days for all three CWs. Something is about to be announced for E&O.

Since the stock is already up 8 sen, I rate the chance of E&O testing the RM1.60 resistance as equal to the chance of it dropping back to the starting price of about RM1.40. As such, this is not an easy trade. Only for the nimble traders.


Chart: E&O's weekly chart as at Jan 16, 2011 (Source: Tradesignum)