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I stopped buying at supports upon realising that CapitaMalls Asia is in an obvious downtrend a while back. Every single bullish reversal signal has failed so far. It cannot get more bearish than this.
I like the fundamentals of the company. I like the fact that it is in a nett cash position. Although as investors we want to exploit the discrepancy between price and value and buy undervalued stocks, we should do so when the time is right. This is only possible when we combine FA with TA.
Buying at supports in an uptrend is the way to go. When the trend is clearly down, what we should do is to wait and see if the next support level holds up. We should look out for signs of a basing process. CapitaMalls Asia is clearly still in decline and I would not add to my position in such an instance. It has yet to start basing.
What we have to realise is that after suffering for more than a year, the tide has clearly turned in favour of the bears. This might be momentary or prolonged. It is futile to wonder how long this phase will last. What matters is to have the correct mentaility which is to stay pragmatic and not be too bullish or bearish.
TA tells us that a downtrend will invite short sellers. Short sellers will come in and sell down stocks at resistance levels. Every attempt the stock makes to rally would be cut down as selling at resistance caps gains and pushes down the price. For long only investors, we should make use of such rallies to reduce exposure and preserve capital. Wait for that basing process and stronger signs of reversals before getting our feet wet again.
When CapitaMalls Asia started the day at $2.08, all hopes of a morning star setup went out the window. True enough, the counter went on to touch a low of $1.96 before closing at the round number $2.00. Another black candle day. MFI is still in the oversold region while OBV continues to decline. MACD is pulling away downwards from the signal line. Using Fibo lines, we see the different support and resistance levels.
Short sellers also like margins of safety and if I were a short seller, a rebound in price to the 78.6% Fibo line ($2.13) or the 61.8% Fibo line ($2.19) would be salivating propositions. Having been sold down relatively rapidly, a rebound to these levels is not impossible. After all, a bear market moves down a river of hope.
If I do reduce exposure in CapitaMalls Asia, this would be the second counter I am cutting loss on this year. The first was China Hongxing which was rather recent as well. That was another case of failing reversal signals. Having conviction is different from being stubborn. The bears have left their caves and they will have their fun.
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