HOT STOCK: Eastern & Oriental Bhd - Support at RM1.57

Support at RM1.57

One of the heavily traded stocks last year, Eastern and Oriental, is still garnering market interest. After setting a 4-year high last month, it slipped into a correction but  the stock’s longer term uptrend since early 2009 is still intact. A close above RM1.60 yesterday may spark a continuation of this uptrend.

We featured Eastern and Oriental twice in our previous reports and  on both occasions,  the stock had moved favourably. After a 3-month rally, the stock reached our target of RM1.78 and printed a 4-year high. This reaffirmed the longer term uptrend that started in early 2009.

It then naturally went into a correction, now into its 5^th week, and has retraced by about 50% of the Nov 2011-Feb 2012 rally. This correction is still considered healthy for the uptrend, based on Fibonacci analysis. The share price is also near the rising 50-day MAV line, which may prove supportive. The stock’s inability to break below RM1.57 despite testing it  twice has triggered buying, with the “Long Black” candle of 23 Feb failing to induce further selling.

Nonetheless, a bottom will only be confirmed if  the stock closes above RM1.60, which was  the highest since 7 Mar. This happened yesterday on improved volume,  which  suggests  renewed buying interest. A purchase can be made above RM1.60, while a close below the Feb and Mar low of RM1.57 can be employed as stop loss. The price target is RM2.15, a measured move based on  the  June 2010  to Aug 2011 rally, which coincidently is  the uncovered gap of Mar 2008. This is provided that the stock manages to violate the short term resistance levels at RM1.70 and RM1.85, the highs of March and Feb respectively.

However, look for the correction to continue should  the  RM1.57 stop loss  be  triggered. First support should come  in  at RM1.45, a measured move based on the Feb decline and a prior resistance in Nov 2011-Jan 2012. Strong support remains at RM1.30, the low of Apr and Nov 2011, a violation of which may signal the end of the 3-year rally.  

Source: OSK188