10. 0 My First Technical Jabber

Contrary to what I expected, there was no Strategic Trading Game (STG) after our Technical Analysis Module. My dissapointment was shortlived as I realized that our professor was indeed right in saying that the STG will not bring out the best in us in analysing stocks technically. Because it only involves play money, participants risk attitude and analytical
thinking will not be tested realistically. Instead, we were required to submuit a technical jabber which to my pleasant surprise did challenge me more than the STG.

I did a technical analysis on Robinsons Land Corporation (RLC) and I am sharing this with you thru this post. This analysis was written four days ago and it turned out that the conclusion and recommendation so far is on the dot. I analysed that the stock was going on a downtrend and indeed it still does as of this writing.

So here it is below the complete jabber on RLC.

RLC Stock Chart: For the Period 3^rd Quarter 2009 – Middle of the 2^nd Quarter 2011

Technical Analysis

Technical Tools Used: Trendlines, Support and Resistance, SMAs (20, 50, 250), MACD, Volume, DMI

1)  Historical Chart Movements: The Big Picture

RLC stock started on a long bullish trend from March 11, 2009 to November 4, 2010. The bullish period can actually be divided into two parts – the first was during the period from March 11, 2009 to November 17, 2009 (strong bullish momentum) and during the period from February 11, 2010 to November 4, 2010 (relatively weaker bullish momentum).

The difference in strength of the bull- run between the two periods was evident by the faster rising slope of the trendline in the former compared to the latter. The succeeding closing prices were higher from previous levels in the first bull-run compared to the second bull-run.

At the end of 2010, the bullish momentum waned as the price declined. It finally broke the neckline of the head-and-shoulder price formation sometime December 21, 2010. The RLC stock chart pattern was on bearish trend until February 28, 2011 and then consolidated thereafter where it is now today. The DMI chart actually gave out a reversal signal to bearish trend well ahead of the head-and-shoulder formation as well as the downward trendline. This was when the +DI Line crossed the –DI line downwards and the ADX hitting below 30 on November 25, 2010

A cursory look at the chart in its totality provides two important observations which will provide a glimpse of where the future price movement is headed in the coming weeks:

a)   The 250-day SMA is moving on a curvilinear pattern. This strongly suggests that the future price is going south.

b)   The price movement is cyclical. During the bull-run, the price moved up and consolidated every two quarters. This is expected to be mirrored during the bear period when the price is expected to go down and consolidate every two quarters until such time that it is reversed.

2)  Price Performance

During the period covered, the RLC stock price advanced tremendously from its lowest price recorded on March 10, 2009 at P3.60 per share and established new highs every other quarter. It first broke a new high on May 21, 2009 when it traded at P7.80 per share. The stock price corrected in the succeeding weeks of trading before proceeding to achieve a new high at P13.00 per share on October 7, 2009. The cycle of correction and consolidation continued every time it attained new highs. The stock price finally topped out at a period-high of P18.50 per share on November 4, 2010.  Overall, the stock priced advanced by 414% over the entire bull period.

Thereafter, the price showed signs of early weakness when it traded and closed at lower prices in the succeeding days. A reversal to bearish movement was confirmed by a head-and-shoulders formation and the crossover of the 20-day and 50-day SMA lines on December 9, 2010. With the bearish trendline established, the stock price went south and did not look back hitting P11.00 per share on March 25, 2011. The price then continued trading sideways and settled at a low of P12.64 at the end of the period under consideration.

3)  Recommendation

In the coming days, we will be seeing the price to retest the first support at P10.25 which was the lowest price achieved before the stock topped out. While it is clear that the stock price is currently consolidating and trading sideways, the probability of the price to decline even lower and break the support level at P10.25 is very high due to the following technical reasons:

a)   The price is coming from a period high. Whatever goes up must come down.

b)   A big head-and-shoulder price formation engulfing the period February – May 2010. This signal medium-term bearish price movement probably lasting two quarters from three quarters from December 2010.

c)   Two consecutive smaller head-and-shoulder patterns confirm that, in the short-term, price is going southbound.

d)  The candlestick formation (three black crows – red as shown in the chart) at the end of the period indicates bearish trend.

e)  The falling volume signals weak buying activity and bearish sentiment.

f)   The formation of the moving averages with the 260-day SMA on top of the price line and the 20-day SMA crossing the 50-day SMA going down indicates that the price will continue to go down.

Once the P10.25 support is broken, the price is expected to decline further to the next support at P9.70 per share. Since this stock price is moving in two-quarter cycles, technically the second support may be achieved sometime middle part of July. When that is hit, the price would have shed about P47.6% of its value.

The bearish forecast has fundamental foundations as follows:

a)  There are no new positive leads for price to go up

b)  Rising inflation and interest rates

c)   Net satisfaction rating of the new administration has been going down.

d)   Continuing conflict in the Middle East (Bahrain, Syria) and African regions (Libya, Yemen)

e)   Debt problems of Greece and Spain

f)    Japanese economic downturn due to the effects of the calamities and nuclear fall-out besetting the nation

Recommendation: When you own shares, unload. Buy at target price of P9.70 or anywhere near it and buy again when it breaks that support at target price of P6.50.