China Stationery’s share price suffered sharp drop from the
yesterday’s intra-day high and a “Bearish Engulfing” pattern has been created.
The bearish reversal pattern is also confirmed with strong volume. We advise
traders to sell the shares now since its share price is expected to normalize
towards the 10-day MAV line.
China Stationery faced massive selling pressure yesterday
and a classic a “Bearish Engulfing” pattern has been created as a result. The
bearish reversal pattern is considered classic because: (i) a long black candle
appeared after its share price appreciated 6 days in a row, (ii) the black
candle of the formation is confirmed with strong volume, and (iii) the daily
RSI reached as high as 85 pts yesterday.
Hence, we advise traders to sell China Stationery now. We
are eyeing the 10-day MAV line, which now lies at the RM1.39 level, as the
downside target since we expect the share price to normalize towards this line
going forward. The 10-day MAV line is considered the normalized price level
because the stock was previously trading around this line towards the end of March
and started to trend along it in early April. The stock would need to surpass
the RM1.93 peak, which represents the highest price level since its IPO, in
order to neutralize the “Bearish Engulfing” effect. Nevertheless, we think the
probability of this happening is rather low, considering the other factors
mentioned above.
Immediate support is seen at the RM1.50 level, followed by
the 10-day MAV line. To the upside, initial resistance is seen at yesterday’s
opening level of RM1.82, followed by the RM1.93 level. The immediate technical
outlook of China Stationery has turned bearish, following the emergence of the
“Bearish Engulfing” formation.
Source: OSK188
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