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Capitaland: Time to buy more?

Thursday, February 10, 2011

I do not have any vested interest in Capitaland but going by the number of emails I have received on whether it is time to buy more to average down, it seems that many are vested in this counter and are still optimistic about its prospects. So, I am doing a TA on this counter out of curiosity.

The negative divergence between higher price and lowering MACD is quite obvious for the period of June 09 to Oct 09 and perhaps even Jan 10. No more higher highs since Jan 10. That was, perhaps, an early warning signal.

A reader asked me if it was time for her to buy more Capitaland shares last evening. I told her I expect more downside today. In confirmation, the low of May 10 at $3.46 was taken out today without any hesitation by Mr. Market. The formation of three black crows now suggests that price could go lower. Some would say that it is more accurately described as two and a half black crows but I am sure the distinction is just academic.

The next low to look at is $3.28 of July 09 and another reader today asked if it is time now to buy some especially if that low were tested. It would take someone very brave to buy in the current conditions, I feel. Could we see $3.28 taken out without hesitation by Mr. Market just like $3.46 was taken out today? Why not?

Isn't there any silver lining? Well, the MFI and RSI have declined into oversold territories. What does this tell us? That the counter is becoming oversold. Nothing more. Doesn't it tell us that the counter could see a rebound soon? No, it tells us that the counter could see a rebound in time but not when. Remember that in very bearish conditions, these indices could stay in oversold regions for a long time.

For people who are dead set on buying some Capitaland shares now, selling if the price rebounds would be a sound strategy. When to sell? At resistance, of course. Each time price rises to test resistance, sellers would come in to sell down the stock. Unless there is a dramatic change in sentiment, this fact is unlikely to change. Connecting the highs of 14 Oct 10 and 6 Jan 11 yields a trendline resistance. This shows a downtrend and where the resistance levels could be if there should be a rebound in time.

What would I do? I would wait for the fire to go out. I don't enjoy the prospect of being burnt. Three black crows (or two and a half) are nothing to fool around with for long holders. So, what am I waiting for? A sign. If the MACD forms a higher low soon, we could be seeing a positive divergence in the making and that is when I might tiptoe into the stock.

Good luck to all who are vested.


Anonymous said...

Hello AK,

When you say looking for a sign, is it only MACD in particular? Can MFI, RSI or OBV perform the same role?


AK71 said...

Hi Kne,

I usually look for divergences between price and volume or price and momentum oscillators. MFI and RSI are momentum oscillators too. So, I use them sometimes too. :)

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