Trading ideas

Transcription

Trading ideas
034-035-Chartnexus:CMASTER
market
intelligence
4/22/08
8:48 PM
Page 34
[ TRADING STRATEGY ]
Trading ideas
Despite poor economic outlook, the
uptrend in the Straits Times Index
has given indication of a bullish
market run. By Ng Ee Hwa
I
n the previous issue, we discussed the major support and
resistance levels to watch out for on the charts of Dow
Jones Industrial Index and the Straits Times Index (STI).
Through observation of those important levels, we shared
with traders and investors on how to make use of this information to plan for their investments. Over the last month,
major support levels stood well against the selling pressure
and the ensuing rebound took us near the highest level in
three months. All these were achieved despite the poor economic outlook.
The best reason to offer for this strong showing is that the
bad news was factored in during the steep decline since the
start of the year. One of my guiding principles in trading is,
when the stock market doesn’t react negatively to bad news, it
means that it is poised to head higher. This article will first present the outlook for STI and then take a closer look into the
charts of three interesting stocks.
From the chart of STI, a very significant technical development occurred in March. During that month, we saw the
downtrend line broken on 27th March 2008. This signifies that
there could be a change from the prior downtrend. Investors
and traders can look forward to the development of an uptrend
in the upcoming weeks. However, the stubborn resistance level
at 3,189 must first be broken. The market had tested this resistance in the first week of April 2008 but wasn’t successful to
close firmly above it. This is only normal as we know gravity
exists in the stock market. After it failed to break the resistance,
the STI retraced backwards to test the 3,030 support, it was
interesting to observe that the selling was well-absorbed and
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the market found a short-term bottom.
In a bear market, resistance will hold and support will be easily broken. Similarly, in a bull market the opposite is true.
Hence, when the STI found support at the 3,000 support level,
the odds of an impending bullish trend developing became
high. While we enjoy the uptrend, readers should observe and
treat any pull-back in the index or individual stock seriously as
we cannot rule out that this could still be a typical bear market
rally. Let us be prudent and not get caught by any sudden mar-
034-035-Chartnexus:CMASTER
4/25/08
4:03 PM
Page 35
[ TRADING STRATEGY ]
market
intelligence
ket plunge. Going forward, the next target level for STI will be
3,300. The reader may also use the 20-day moving average to
track the direction of STI for trading opportunities. With the outlook for STI in mind, let us now look at the following three interesting stocks.
average line and the price. If the trend is heading up, the 20day moving average will act as a support for any price pull
back. We should be careful if this line fails to act as a support
in the future.
City Developments
Cosco Corp
The first resistance level of this stock is at $12.60 (Resistance 1 as
seen in the chart). There were at least three previous attempts to
break this resistance but all failed. If we can break this resistance
level successfully, the upward movement will be strong. We can
then expect the price to test the next resistance level at $14.66
(Resistance 2 as seen in the chart). During the uptrend, 20-day
moving average may be used to track the price.
After the announcement of the cancellation of a contract with
a Norwegian company, Cosco Corp’s share price took a beating and triggered many analysts to issue downgrades on the
stock. Market opinion about the future of Cosco Corp was
divided. One section was fearful of more contract cancellations to come, while the other section thought that this is a fantastic price to pick up the shares. The share price was supported at $2.81 with the low achieved on the 18th of March and it
managed a technical rebound. Looking at the Money Flow
Index (MFI), it’s interesting to observe that we may be near the
support of MFI and a rebound is beckoning. The first resistance
will be the resistance zone from $3.18 to $3.34. SI
Mr Ng Ee Hwa is a private trader and Market Strategist for
ChartNexus. He is also the ChartNexus’ chief trainer, conducting trading strategy seminars and coaching programs around
the region. ChartNexus is a regional company providing FREE
charting software for the investment community. The company
also organizes investment seminars and training program on a
regular basis, promoting the use of technical analysis. For
more information, please visit www.chartnexus.com or email
[email protected]
Capitaland
We see a possible resistance zone formed between $7.25 and
$7.35. After the initial breakout of the trading range from $5.50
to $6.40, the price retraced and found support on the 20-day
moving average. As the stock trades higher, the reader may
want to observe the relationship between the 20-day moving
One of my guiding principles
in trading is, when the
stock market doesn’t react
negatively to bad news, it
means that it is poised to
head higher.
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