Although the fundamentals of Marco Polo Marine are sound and its future looks bright, Mr. Market is not known to respect fundamentals. Mr. Market is a creature of sentiments.
Technical analysis provides a window into the collective psyche of market participants and when there are negative divergences aplenty, we should exercise caution when thinking of initiating a long position or adding to a long position.
The presence of negative divergences does not mean that the share price will definitely weaken. It does not mean that the share price will not go higher. It just means that the risk of a retracement is now higher.
So, how do we respond to something like this?
Personally, I have not divested any of my shares of Marco Polo Marine. I am that confident of the company's prospects. In fact, if there should be a pullback to supports, I am likely to add to my long position.
So, is buying on pullbacks at supports a sure win strategy? Not at all. Supports could break and price could go lower! If that disturbs you, you might want to hold on to your money. However, if price should rebound and go higher, would you kick yourself if you had held on to your money?
If the fundamentals are sound, lower prices would present greater value. Why wouldn't we buy? The trick is in buying at supports and pacing ourselves as we do so. Don't throw in everything including the kitchen sink at the first support on retracement.
Some would say to wait for clearer signs of an upturn before adding to long positions. That, I feel, would work better in a downtrend. In an uptrend, buying at supports on pullbacks is what I would do. Go back one blog post and you would know what I mean.
Finally, just to add the confusion, technical analysis shows where the supports and resistance are but there is no guarantee that these would be tested at all. This is where hedging comes in. Something to think about over the weekend, perhaps?
Marco Polo Marine: Looking into the future.