Jul 29, 2011

KULIM -Technical Analysis RM4.00 To Be Retested…

Kulim (KULIM) All-time High Of RM4.00 To Be Retested…

Technical Interpretations:
♦ Since hitting its all-time high of RM4.00 in Feb, Kulim’s share price corrected to a low of RM3.12 on 15 Mar before a technical rebound drove it to a high of RM3.73 on 31 May. 
♦ The stock subsequently consolidated within the RM3.48-3.68 region over the next few weeks. 
♦ Yesterday, a surge in trading volume of 7.3m shares saw Kulim share price gap up to close at its day-high of RM3.74 (from its previous close of RM3.57). Note that the stock’s price breakout above both the 10-day and 40-day SMAs to form a long-white candlestick yesterday. 
♦ Consequently, the MACD line cut above  the signal line (with both lines reversing its downtrend to head deeper into the positive region) to indicate an increasingly positive outlook in the short term. 
♦ This is further confirmed by the strong likelihood of the 10-day SMA (RM3.55) cutting above the 40-day SMA (RM3.561) to suggest a change in the stock’s medium-term outlook to positive (from negative previously).
♦ Nevertheless, the steep spike in Kulim’s share price yesterday pushed the RSI (73.842 pts) and Stochastic into the overbought region

Below: Kulim Technical Daily Chart (click to enlarge):


Daily Trading Strategy:
♦ Technically, we expect the stock to retest its immediate resistance of RM3.78 in the short term. Given the positive indications by the short-term indicators and expectations of strong buying interest, we expect the stock to breakout above its immediate resistance of RM3.78 and continue its rally towards the next resistance of
RM3.94 and RM4.00 (upon breaching of RM4.00 resistance) in the medium term. 
♦ Nonetheless, we do not discount the possibility of  a pullback in the immediate  term given the overbought indication of the RSI and Stochastic.
♦ Hence, we advise investors to buy towards the immediate support of RM3.74 for a better bargain.
♦ Although we see good support at RM3.62, breaching this level would lead to its share price falling to its next support-region of RM3.48-3.55 which would, in turn, offer longer-term investors a chance to accumulate at a better bargain. Investors should, however, note that breaching of the RM3.48 support would turn the immediate
outlook negative. Hence, short-term investors should cut loss if the price breaches RM3.62 while medium-term investors may choose to cut loss below RM3.48.
♦ Overall, we see a reasonable risk to reward ratio for investors with a theoretical entry price of RM3.70 given that the downside to the support of RM3.48 is 22 sen while the upside to the resistance of RM3.94 and RM4.00 is 24 sen and 30 sen respectively.

by RHB Investment