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CapitaMalls Asia: Waiting for a correction.

Wednesday, April 13, 2011

Quite a few people I know have fully divested their investments in CapitaMalls Asia. They did this as the counter tested resistance at $1.88 many times recently. Looking at the daily chart, it is obvious that $1.88 is a strong barrier to further upward movement in price. So? Sell at $1.88 or, if we are lucky, higher on whipsaws, and wait for price to pull back before buying in again? If only life were that simple and if only Mr. Market were that cooperative.

Personally, I am also waiting for price to weaken to supports at $1.83 and $1.80 before increasing my exposure to this counter. Look at the MFI and RSI and we see them bordering on overbought. However, remember that in very bullish conditions, things could stay overbought for quite a while. So, being overbought doesn't mean much and it does not mean that we would see a correction in price.


Look at the ADX and we see that it is rising. It is rising as the +DI has the advantage. So? Buy on any pull back to supports. That's conventional wisdom in an uptrend. That is what I would like to do.

Now, what could go wrong? Remember what Guppy said before? We could either have a correction in price or a correction using time. In the latter case, price could simply move sideways until the rising 20dMA catches up with it before going higher.

See where the 20dMA is now? It is rising strongly and seems on track to form a golden cross with the 50dMA soon. This is a bullish sign, if a short term one. If price is indeed doing a correction using time, all of us waiting to accumulate at $1.83 and $1.80 would be very disappointed.

Personally, I am still vested and will not add to my position at current levels. If price should go higher, I see the next significant resistance at $2.00. If price were to weaken to supports, I would accumulate.

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