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Wilmar: Settling dust?

Sunday, May 13, 2012

Bollinger bands are very popular in TA. Upper band acts as resistance and lower band acts as support. Look at Wilmar's daily chart, we see that price has pushed past the lower band. This gives us a very bearish picture. Support is weak. It also tells us that the counter is deeply oversold but remember that in very bearish conditions, oversold can stay oversold. It really doesn't say anything else.

Conventional TA tells us that we should buy when price breaks the lower band. This is to take advantage of oversold conditions. The belief is that, eventually, price would return to the lower band and then the middle band. The operative word here is "eventually". When exactly? Your guess is as good as mine, is it not?



Anyone who bought Wilmar's shares three sessions ago as it closed below the lower band at $4.70 would be licking serious wounds as the counter closed at $4.14 in the last session. Selling pressure has been enormous as share price went much lower.



The Lord Buddha said that nothing is permanent. Similarly, buying or selling pressure would come to an end one day. As our resources are limited, we want to buy when the selling pressure has dissipated.

Volume would be a good indicator if the sellers are done. In the last session, although Wilmar's share price closed lower, volume was less than half of the preceding session's which saw a huge gap down in price. A black spinning top was also formed and spinning tops, whatever the color, are usually signs of indecision on Mr. Market's part. Indecision in a downtrend? Doesn't that sound like good news for long holders? However, we should remember that one stick patterns are not very reliable. So, I would take this with a pinch of salt.



If price continues to decline with smaller magnitudes as volume reduces further, it would be a sign that selling pressure is dissipating and that the counter's share price could be looking for a floor, if not the bottom. This is when I would add to my long position. Bear in mind that it does not mean that price has bottomed as we can only call a bottom once it has been formed. Yes, only hindsight can call a bottom and hindsight, apart from being academically attractive, isn't terribly useful.

Dust is very much still in the air here and although it might not be in the same league as Long Men Ke Zhan's sandstorms, visibility is still not good enough for me. I am staying indoors for now.



Related post:
Wilmar: Mr. Market reacts to weaker earnings.

14 comments:

Casey said...

Hi Ak,

I never trust TA. When I use TA, some thing bad will turn out, there is not exception this time. I bought lots of wilmar at 4.75. I should have believe in fundamental value investment, which have given good returns on stock market investment, again if based on my fundamental analysis, the fair value of Wilmar is only 3.50, while Noble is 1.10, should I just cut lost loss on Wilmar and switch to the relatively very safe Noble at this price? Mind to share your view?
Casey.

Ray said...

Wilmar opened slightly higher today.
If things goes well and it close higher, then a hirami would have formed and bodes well for traders to come in to boost volume.

From FA standpoint, China easing the RRR will help investors regain some confidence but we have to wait for more news from ECB with regards to the Euro mess.

AK71 said...

Hi Casey,

I think there is an element of subjectivity in both FA and TA. I remember saying TA is an art but the blogmaster of "Time to Huat" told me it is a science. Haha.. Well, I rationalised that as long as it works for me, it doesn't matter whether it is an art or a science.

FA has many valuations techniques and one person's valuation of a company can be so different from another's. See my recent blog post on NOL: NOL: Bleeding badly.

Of course, there is a chance that Wilmar's share price could go lower or could it be starting a basing process now? Has Noble bottomed? Its downtrend is still intact, isn't it?

FA or TA, however we use these, as long as we are comfortable and as long as they work most of the time, I am contented. :)

AK71 said...

Hi Ray,

The bears would probably try to push Wilmar's share price further down. Shortists would try to milk more gains out of this sell down. The easy money has been made and for those who are shorting now, the risk is much higher.

The very sharp decline in Wilmar's share price is technically very damaging. In such instances, for me, not doing anything is probably the best thing to do. I will wait for signs of a positive divergence which could take months to form if at all.

thepotatotimes said...

That's the big bronze Buddha from Po Lin Monastery! Still fresh in my mind after my recent HK trip :)

AK71 said...

Hi TPT (aka BJ?),

Yup. I went there late last year while holidaying in HK. I enjoyed that location the most. :)

Hong Kong: The Giant Buddha in Ngong Ping.

Would like to visit again one day.

Ray said...

FA NEWS: Germany and France GDP shows growth.
Euro indices are rebounding.

TA: Wilmar is showing a bullish hirami reversal pattern. (as of time of this comment that is.)

Time to collect? Your guess is as good (or better than) as mine ;)

AK71 said...

Hi Ray,

The blogmaster of "Time to Huat" would say that we could perhaps do a "tikam". Hahaha... If things still look positive at the end of the day or early tomorrow, perhaps, I would add a little to my long position. ;p

Casey said...

Hi AK,

You are right. But to me, TA is for expert and I am not. FA suit me well. Out of sudden, All the trio, Olam, Noble, and Wilmar have become more attractive. I have started to accumulate Noble at 1.09 today, and will start to accumulate Olam if the price reach below 1.65. As for Wilmar, it supposed to be the one that is least sensitive to the commodity price fluctuation as it is managing the entire supply chain from commodity to consumer product to highly specialized product. I hope that there is no speculative element exist in such result. If yes, I might have made a total mistake as it will not be my cup of tea.

AK71 said...

Hi Casey,

Well, there will always be experts in FA and TA and something else. ;)

I am not an expert and I try to do what I can with what I know. Bearing in mind that even experts can be wrong, I should not be too enamoured with my own analyses. I need to be reminded of this from time to time. The current sell down is an effective reminder. ;p

Without a doubt, as prices decline, value shines brighter, everything remaining equal. Good luck to us all. :)

AK71 said...

For those of us who are thinking of cutting at this point in time, the time to cut has probably come and gone:

Wilmar International Limited’s (WIL) stock price took a big hit after posting a dismal set of 1Q12 results on 10 May. From the previous day close of S$4.70, the stock closed 9% lower on the day after its 1Q12 results announcement. And since then, the stock has fallen by another 13% to hit a recent low of S$3.71. We note that the stock has also fallen 37% from its 52-week high of S$5.99. At its current price, we note that WIL is trading around 12.2x consensus FY12 EPS, or around one standard deviation below its 5-year mean. During the previous subprime financial crisis, WIL’s PER fell to a low of 9.7x, or about -1.5x SD below its historical mean. Given that the market is still adopting a more risk adverse approach, we lower our fair value estimate from S$4.30 to S$3.87 (based on 13.5x PER versus 15x previously). Maintain HOLD as valuations are not demanding. (Source: OCBC Research)

In fact, we should be looking out for opportunities to accumulate on weakness.

Ray said...

yep, agree totally. The time to cut is last week. Now is waiting for reversal. In fact today Wilmar's price soared. It may or may not last but the buying strength is returning and will reverse if Europe side has no major negative news coming out.

Ray said...

So AK, did u accumulate more at the price nearby 3.90?

AK71 said...

Hi Ray,

My itchy fingers bought some without me knowing... ;p

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