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China Minzhong: Good results produced long black candle!

Share price of China Minzhong opened higher at $1.11 and touched $1.12 today before closing much lower at the end of the day at $1.025.

Why has Mr. Market turned bearish on China Minzhong? Did the company report dismal results? No, on the contrary, results although not stellar are pretty encouraging.

China Minzhong actually saw a 5.9% increase in net profit to RMB 255 m for 3Q FY2013. This was on the back of higher revenue which increased by 27.7% to RMB 962.2 m.

Both cultivated and processed vegetables segments did well. Driven by growing domestic demand, the former's revenue improved 36%, year on year, while, driven by export demand, the latter's revenue improved 22%. Revenue from other processed products improved some 51.5%, reflecting strong demand for China Minzhong's branded products which include beverages.

What do all these tell me? The business is growing rather nicely. Then, why is Mr. Market selling down the stock? I have no idea and it really doesn't bother me. What matters is what I am going to do and I am definitely not selling.

With lowering share price, valuation is becoming cheaper. Do I want to sell something cheap? Or would I rather buy something cheap?

Technically, however, a long black candle, an engulfing one in this case, no less, is very bearish. We could see share price declining even more as I have little doubt that this could have brought out the shortists amongst us.

It would, therefore, not surprise me if the recent low of 96.5c should be retested if the gap covers at $1.005. Immediate support is provided by the 20d MA at $1.025.

Of course, we don't want to catch a falling knife. Even if we believe that fundamentals are good, to wait and see could be a better thing to do now. What am I waiting to see?

See if price should retest 96.5c. See if volume dries up as price goes lower. See if the momentum oscillators form higher lows especially if price should form a lower low.

Cheap could get cheaper and I am sure everyone likes to buy a good stock cheaper. However, there is nothing wrong with buying cheap and buying again even cheaper later on (or is there)?

See China Minzhong's 3Q FY2013 results: here.

You might also be interested in these blog posts:
1. China Minzhong: Bought more at $1.025.
2. How to tell if a company is a potential takeover target?
3. Teach yourself fundamental and technical analysis.