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China Hongxing: Downside target?

Sunday, March 14, 2010

On 6 Mar, I had a post titled, "China Hongxing: Another S-chip bites the dust."  In that post, I said: "Analysts are downgrading the prospects of the company en masse despite the company reporting a net cash position of 22c per share. The share price closed at 14c on 5 March. CIMB-GK and Kim Eng Securities even ceased coverage of the company altogether."

In 12 Mar, Lim & Tan Securities, remarked that although China Hongxing's price has declined, at the current level, it is still expensive compared to peers.  "While Hongxing has declined 14% since we downgraded it to a Sell on 2 March ’10, we see no reason to change it due to its still demanding valuations and potential for more market share loss..."

Technically, I mentioned that "..14c is currently at the channel support. However, if this breaks, the next support is at 12c and a stronger one is at 10c. Any upmove from 14c is likely to be just a rebound from oversold conditions and would meet with resistance at 16c, thereabouts, which is provided by the descending 20dMA. If, in the unlikely event that the 20dMA is taken out, very strong resistance is provided by a confluence of the 50d, 100d and 200d MAs, which are at 19c, thereabouts."

The decline in China Hongxing's price seems to have halted and rebounded as it was supported by the channel support at 14c.  The decline in price has been accompanied by a decline in trading volume.  The Stochastics has just turned up from the oversold region.  These indicators suggest that downward pressure is limited but it might be a temporary respite.

A broader head and shoulders pattern which stretched over a duration of about nine months is now quite obvious.  This, coupled with the obvious downtrend of all the moving averages suggest that more downside is on the cards.  Accumulating at supports in an uptrend is a good idea.  Accumulating at supports in a downtrend is a different story as supports could quickly become resistance.

Using Fibo lines, we see that 14.5c is a 123.6% support.  Unless there is an upmove with meaningful volume in the near future, a test of the 138.2% Fibo support is most likely and that is at 13c.  Thereafter, the 150% Fibo support is at 12c. Further downside cannot be discounted as a valid head and shoulders pattern would see the ultimate downside target somewhere at 10c.

The following video clip is quite funny.  It has a twist in the end.   I thought since this post is about a sneakers manufacturer, why not?  In case you are wondering, no, I'm not working for Microsoft and they are not paying me to do this.  Enjoy:

Related post:
China Hongxing: Another S-chip bites the dust.


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