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"E-book" by AK

Second "e-book".

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CapitaMalls Asia: Bought some at $1.85.

Thursday, December 16, 2010

Just last night, I said "With all the momentum oscillators forming lower highs and the OBV showing obvious distribution, going long on this counter now would be most risky. Any upmove could simply be a rebound from oversold conditions and would find immediate resistance at $2, a recently many times tested resistance level and it is also where we find the declining 20dMA. I have my eyes on $1.88 and $1.85 as possible fair entry prices."

Well, my overnight BUY queue at $1.85 was filled. What is my plan now? Well, prices don't go down in a straight line. If there is a rebound, I expect resistance at $2.00 and that is where I would divest for a trade. The likelihood of this happening in the next few weeks is not at all remote.  Look at the MFI, it seems to be forming higher lows. There is still some underlying demand for this counter's stocks, it would seem.

However, looking at how the volume expanded dramatically today, almost tripling compared to yesterday, we cannot help but wonder if price could weaken further. Using two sets of Fibo lines, the first using $1.91 as the extreme low and the second using $1.84 as the extreme low, we see $1.65 showing up as 161.8% Fibo line in the former and 138.2% Fibo line in the latter.  That is the ultimate strong support in case of a continuing sell down with heavy volume. That's a fair bit to fall from $1.85 and I will have my warchest ready.

Related post:
CapitaMalls Asia: Testing historical low.


Confused said...

Hi AK,

I'm a little confused by the application of Fibonacci Retracement. Tried looking up but got confused. Perhaps u cld help ;)

How do we know when can we use it? I tried to find the nearest but there are always highest and lowest points in previous months/days.

And referring to the chart, do we always indicate 0% at 2.33 level/100% at 1.91 or can be 100% at 2.33/0% at 1.91 level?

Also per your chart, having 2 or more fibo lines based on different dates already provides totally different results, then what do we based on for accuracy? (in the example being 138.2% gives $1.811 and $1.653)

Then again, is it necessary to use Fibo? I also see you do not use it often.

SOrry for the length. So if you have spare time, pse feel free to answer. Thank you.

AK71 said...

Hi Confused,

The use of Fibo lines is helpful as an additional tool to find or confirm psychological supports and resistance. It is not absolutely necessary.

Theoretically, Fibo lines using further extremes would indicate stronger supports and resistance.

Using a few sets of Fibo lines is something I do sometimes to see if there are certain price levels which are more significant than others.

Of course, the choice of which extremes to use is somewhat subjective. This is where individual judgement could play a part.

I hope my explanation helps. :)

Confused said...

How about sharing your views on my 2nd and 3rd question regards to the application on the Capitamall Asia chart?

Hope it's not too much on Xmas eve ;)

AK71 said...

Hi Confused,

Without referring to specifics, you will find the answers in my last comment. ;-p

The choice of extremes is a rather subjective exercise sometimes. It is up to the chartist. :)

Depending on your choices, 38.2% (or any Fibo %) will be different values and are all equally valid.

TA is a science and an art. Fibo lines alone cannot amount to much. Used in conjunction with other indicators and we have a fuller picture. :)

la papillion said...

Hi Confused,

Let me help AK :)

Don't be too concerned about where to select the best points for the fibo. Think where would most pple would place their fibo extreme points. TA works on mass psychology, if you've found a point where most pple uses them, then the subsequent retracement lines would have more significant support/resistance since more pple would act on them.

Since fibo is to check for retracement level, you have to understand what's a retracement first. If the price moves up, then it would retrace and fall back before going up again. Similarly, if the price moves down, then it would retrace and rebound up before coming down again. Price don't go up or down in a straight line.

Hence, to check for upward retracement in a downtrend, your 0% should be at the peak, which is at the start of the downtrend, 100% being the trough at the end of the downtrend before the retracement.

To check for downward retracement during a uptrend, your 0% should be placed at the trough at the beginning of the uptrend and 100% should be placed at the peak at the end of the uptrend.

If you look at the chart of capmallasia, there's no meaningful retracement, so while there's a beginning to the downtrend (0%), there's still no end yet (100%). I suppose AK is guessing what happens if the price at 1.91 and 1.84 respectively is the end of the downtrend.

I agree with AK. It's pointless to put 'accuracy' into charts since it's subjective. It's like 3 blind men describing an elephant. Everyone is partially correct. There are a few important information in a chart: opening price, closing price, highest price, lowest price and volume. All indicators take a snapshot of the above information. So, just take 3 or 4 independent indicators, each depicting a different snapshot. If most of them shows the same picture, then you have a pretty good idea what will happen.

AK71 said...

Hi LP,

You are a really super tutor! :)

Can tell from your very detailed comment on Fibo lines. Thanks a million! :-)

Confused said...

I see, I understand now - no more confused. Thank you both for the wonderful sharing.

AK71 said...

Hi Confused,

LP did the hard work. Haha.. So, you need a new nickname now? "Unconfused"? ;p

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