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.
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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.
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