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Now, I observe a similar symmetry in Healthway Medical's chart once more. Recent bottom was formed on 11 Feb at 13.5c before price moved up, formed mini ascending triangles before breaking out on 3 Mar. The neckline? 16c. Target price of the mini ascending triangles would be a projection of the bottom at 13.5c to the neckline at 16c and beyond which gives us 18.5c which was hit on 9 Mar. OK, interesting geometry lesson. Now what?
Price has not been able to form a new high since 9 Mar. Dwindling volume suggests a lack of buying interest. This is confirmed by the lower high formed on the MFI signifying a reduction in buying momentum. A sell signal was registered on the MACD yesterday and confirmed today. So, is the price going to crash?
Looking at the MFI sometimes provides an incomplete picture without the OBV. If we look at the OBV, we will see that there is no strong distribution going on. So, although the MFI suggests a slowing down in buying momentum, the OBV reassures by suggesting that the counter is not undergoing any distribution. The logical conclusion is that weak holders are once again being shaken out. However, this does not mean that price will not drift lower. We might see 16c tested yet. That coincides with the fundamental fair value I have ascribed to the shares of Healthway Medical when I did a revaluation on 24 Feb: "Healthway Medical: An updated valuation."
If 16c fails to hold, we could possibly see 13.5c tested and would relegate Healthway Medical to a wide trading band although the rising MAs at the moment suggest that the uptrend is still intact.
Related post:
Healthway Medical: A beautiful symmetry.
Healthway Medical: An updated valuation.
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6 comments:
HI AK71,
I have a stupid question. Hope you dont mind. In looking at the charts, do we always use the 20 day and 50 day MA? I realise you always look at these 2.
Thank you
Regards
Phyllis
Hi,
What does distribution u mentioned on OBV mean? What's the difference btw strong n weak distribution?
Thanks in advance for enlightening.
CA
Hi Phyllis,
It is not a stupid question at all. The way the 20dMA and 50dMA interact with each other is very telling on whether the short term trend is up or down.
If the 20dMA is moving upwards to intersect the 50dMA, it is bullish as the short term price movement is positive and might move higher. If the 20dMA crosses the 50dMA in this fashion, we have a golden cross.
If the 20dMA is moving downwards to intersect the 50dMA, it is bearish as the short term price movement is negative and might move lower. If the 20dMA crosses the 50dMA in this fashion, we have a dead cross.
Overall, we also want to pay attention to the spread between moving averages. If the spread becomes wider and wider, it might be a sign that the prevailing price action is getting a bit too extreme and a reversion to the mean might not be too far off.
For longer term trends, we look towards the 100dMA and the 200dMA. Analyse them like we would the 20dMA and the 50dMA. Usually, I look at all four.
Of course, you could choose to use moving averages of other durations but the 20d, 50d, 100d and 200d are commonly used.
Hi CA,
The OBV is a TA tool and you can see it in the above chart I did for Healthway Medical today. OBV is used to determine if accumulation or distribution is taking place. Acuumulation means buying while distribution means selling.
So, in this case, we see the MFI declining and forming a lower high. It suggests a weakening buying momentum. However, when we look at the OBV, there is no sharp or obvious decline. This suggests a lack of selling.
I have mentioned to friends who only use the MFI in their TA that using the MFI and OBV together gives us a more complete understanding of the psychology of market participants. This is important as it would help us decide if we should accumulate at supports.
What we have to be wary of is strong distribution which might suggest institutional funds exiting a security or large number of investors stampeding for the exit as was the case with Genting recently. This would usually manifest itself as a sharp decline in the OBV.
A weak distribution is a gentler decline in the OBV which might not be too alarming as it might just indicate some profit taking by some investors.
Hi AK
Thanks for your explanation!
Based on Genting as an example, does it mean that on 5 Mar to 13 Jan 10, we are witnessing rising MFI and gentle rising of OBV which meant that slight accumulation is happening? However, Stochastic has hit 80% level with higher price but declining volume so how should we read this?
Hi CA,
Rising MFI is a sign of positive buying momentum. Rising OBV is a sign of accumulation. You are right on these but let's dig deeper.
The MFI is below 50% and rising. 50% often acts as resistance or support. See if the MFI could go above 50% or if it gets resisted. The OBV is rising but it is very shallow which is in line with my suspicion that we are probably seeing short covering. There is no substantial increase in long positions here.
Declining volume with rising price forms a negative divergence and this is bearish. It suggests that the upmove in price is not sustainable. I won't look at the Stochastics at this point in time. The Stochastics is usually more accurate in trendless sideway movements.
Finally, I would like you to take a look at the candle formed today. Remember what I said about a candle with a long wick on top? It's bearish. On top of this, it's an inverted hammer which is viewed as a possible reversal signal when it forms in an uptrend.
Of course, all these do not mean that Genting SP cannot go higher tomorrow or for the rest of the week.
However, the probability of the price going back down is higher than a continuing upward push (which could happen if the volume suddenly expands with a push up in price). After all, TA is about probabilities, not absolutes.
Have you bought a TA book recently? ;)
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