HOT STOCK: SEG International Bhd - Need to Hold Support

SEG International has  spent the last one year consolidating the impressive 1½ -year rally that started in early 2010. Intermediate-term support is indentified at RM1.66 and the uptrend will be intact as long as the level holds. However, a violation  may spell the end of the  rally, confirming the weakness seen from the multiple failed breakouts from theRM2.00 level.

The stock was one of the market outperformers during the run-up towards  the  July 2011 high.  The rally chalked up an impressive gain from the low of RM0.17 in early 2010 until the test of RM2.00 in 2011. Since July 2011, the stock has been trading sideways, which saw its price being capped by the psychological resistance of RM2.00 and supported above the 1-year low of RM1.66. Nonetheless, the longer-term trend is intact, as seen from the series of higher lows at RM1.00 and RM1.66.  However, the four failed tests of the psychological RM2.00 in the past  one  year  have  certainly dampened the upward bias. It raises the possibility of the formation of a topping pattern, where the distribution process was carried out during the consolidation phase. The current price of below the converging MAV lines does not help the uptrend either. A convergence of multiple MAV lines, in this case at RM1.85, sometimes indicates the pivotal point that brings about a change in trend.

Therefore, to keep the longer-term trend intact, the stock has to find support above RM1.66. This requires a positive response to the “Long White” candle of 30 March. The high volume achieved that day also points to a return of buying support. Thus, positions can be considered as long as the stock trades above RM1.66 with a close above RM1.85, also the high of the “Long White” candle,  the required confirmation.  The price target is RM2.35, based on  the 1-year sideways range, provided that the psychological RM2.00 is violated convincingly.

However, positions will  look increasingly untenable if the stock fails to break RM1.85, with a close below RM1.66 confirming the technical weakness. A successful violation will likely end the 2-year rally and strong support is expected at RM1.35, retracing 38% of the 2010-2011 rally and just below the 62% retracement of the Dec 2010-July 2011 rally.

Source: OSK188