Jun 21, 2011

Malaysia Building Society (MBSB) Technical Analysis

Accumulate MBSB Towards RM1.38 For Longer-term Rally With A Chance For A Rebound In The Short Term

rhb-technical-analysis above: MBSB Daily Chart (click to enlarge)

Technical Interpretations:
♦  Over the last one year, MBSB’s saw its share price consolidating within an ascending  triangle formation before breaking out on 21 Mar. Upon breaking out from the triangle formation, the bullish momentum drove the stock to a new high of RM1.72 before a correction saw its share price falling to a low of RM1.39 on 10 May. 
♦  The stock, however, found support at RM1.39 and resumed its uptrend to a high of RM1.72 on 26 May. Failing to breakthrough its previous high of RM1.72, the stock (which formed a double-top formation) saw a change in trend (from bullish to bearish) and corrected to a low of RM1.38 on 16 Jun.
♦  Nevertheless, the stock once again found support at RM1.38 to stage a technical rebound to close slightly below the 10-day SMA (RM1.424) at RM1.41  yesterday. Note that the stock saw a  relatively high trading volume of 3.3m shares yesterday. 
♦  Noticeably, the RSI remained flat at  41.106 pts (below its 50 pt resistance level) to suggest that buying momentum remained relatively weak in the immediate term. 
♦  In addition, the increasing divergence of the MACD line below the signal line (with both lines crossing into the negative region) indicates the prevailing bearish momentum and a negative outlook in the immediate term.
♦  Furthermore, the 10-day SMA (RM1.424) increases its divergence below the 40-day SMA (RM1.524) to further confirm a negative outlook in the short term.
♦  Nevertheless, the oversold indication of the Stochastic may imply a potential technical rebound in the immediate term (given that the stock had seen a sharp fall in its share price over the last few days).

Daily Trading Strategy:
♦  Overall, we expect MBSB’s share price to consolidate within the RM1.38-1.44 range in the medium term. Nevertheless, we do not rule out the possibility of a technical rebound taking place in the short term given the oversold indication of the  Stochastic (coupled with the proximity of  its share price to the crucial support of
♦  In view of that, we advise investors to accumulate towards the immediate support of RM1.38 in anticipation of a longer-term rally towards the resistance of RM1.54 and RM1.64. In the event of a breakout above RM1.64, we expect the bullish momentum to drive the stock’s price towards its one-year high of RM1.72. 
♦  Note that, MBSB’s share price would need to remove its  immediate resistance of RM1.44 to turn its immediate outlook positive (and signal a potential revival of its upward rally), while the further breaching of the RM1.54 resistance would turn the overall outlook positive (and serve as a confirmation to the stock’s uptrend). 
♦  Aggressive investors may, however,  enter at yesterday’s close of RM1.41 for a bet on a possible technical rebound towards its immediate resistance of RM1.44 in  the short term and the 40-day SMA (RM1.524) in the medium term. 
♦  While we expect good support at RM1.38, breaching this level would turn its immediate outlook negative and lead to its share price falling to its next support of RM1.32. Note that a further breaching of RM1.32 would turn the overall outlook negative with the next support seen at a distant RM1.21. Hence, short-term investors should cut loss if the price breaches RM1.38 while medium-term investors may choose to cut loss below RM1.32.
♦  While we advise against any short-term play, we see a good risk to reward ratio for investors with an entry price of RM1.40 given that the upside to its immediate resistance of RM1.54 and RM1.64 is 14 sen and 24 sen respectively while the downside to its support of RM1.32 is capped at 8 sen. 

By RHB Research.