Jul 5, 2011

Alliance Financial Group (AFG) - Buying Momentum

Technical Highlights Alliance Financial Group (AFG)
Fresh Buying Momentum To Fuel New Rally Towards RM3.48

AIG Daily Technical Chart: (click to enlarge)


Technical Interpretations:
♦  Since hitting a year high of RM3.31 in Nov 2010, AFG saw its share price correcting to a low of RM2.94 before a technical rebound lifted it to a high of RM3.30 on 17 Jan. 
♦  Failing to break through its year-high of RM3.31, the stock subsequently consolidated within a triangle formation over the next few months before a surge in trading volume pushed its share price above the ceiling of the triangle formation (to close at its day-high of RM3.18 on 30 Jun). 
♦  Yesterday, the stock saw another surge in trading volume of 5.5m shares to hit a day-high of RM3.29 (from its open of RM3.20) before pulling back to close at RM3.27. Note that it formed a long-white candlestick yesterday.
♦  Noticeably, the MACD line increased its divergence over the signal line (with both lines pressing deeper into the positive region) to indicate a prevailing bullish momentum and an increasingly positive outlook in the short term.
♦  Further confirmation to the stock’s bullish outlook is seen by the increasing divergence of the upward-tipping 10-day SMA (RM3.139) above the 40-day SMA (RM3.095). 
♦  Nonetheless, the sharp spike in AFG’s share price over the last few days also pushed the RSI (71.087 pts) and Stochastic into the overbought region.

Daily Trading Strategy: 
♦  Technically, the formation of a long-white candlestick yesterday (coupled with the positive indication of the MACD) indicates strong bullish momentum in the short term.  In our view, AFG’s share price would stage a breakout above its immediate resistance of RM3.30 in the short term and continue its uptrend towards the next resistance of RM3.38 and RM3.48 (upon breaching of RM3.38 resistance) in the medium term. 
♦  In the event of a breakout above RM3.48, we expect the bullish momentum to drive the stock’s price to its next resistance of RM3.64.
♦  Nevertheless, the overbought indication of the RSI and Stochastic suggests a possible pullback in the immediate term before the stock resumes its uptrend.
♦  Hence, we advise investors to buy towards the support range of RM3.20-RM3.23 for a better bargain.
♦  Although we expect good support at RM3.20, breaching this level would turn its immediate outlook neutral and lead to its share price falling to its next support of RM3.08. Note that a further breaching of the RM3.08 level would turn the immediate outlook negative. Hence, short-term investors should cut loss if the price breaches RM3.20 while medium-term investors may choose to cut loss at below RM3.08.
♦  Overall, given the positive market sentiment, we see a reasonable risk to reward ratio for investors with an entry price of RM3.25 given that the upside to the resistance of RM3.38 and RM3.48 is 13 sen and 23 sen respectively while the downside to its cut loss level of RM3.08 is 20 sen.