I have been waiting to write this post and thinking the title for about 1 month since i first write a research on this stock (See my research here). And finally, here you are, the breakout and my post.
Today the stock finally make a breakout and hence give a technical buy SIGNal.
My deduction is that there was a surge in retail buying after TA Securities's give a higher TP in a report published yesterday (13May). However, unlike CIMB's last-month-report that caused a massive buying on 27Apr, which later met with supply of stock and drive the price back to its limbo. This time, the supply was not there. Then a virtuous cycle that i have been waiting for happen, Quick traders anticipated the breakout, buy in prediction of the breakout and then fulfilling the prophecy themself. The whole reflexive successfully caused the breakout.
OK. There was a breakout, everyone reading this blog knows. But what is next? Rally? Yes, it will be most probably be one because
|SIGN Daily Chart|
|SIGN Weekly Chart|
My TP is at RM3.70. TA just change his mind to a higher RM3.65 while CIMB still keeping their always-the-highest TP at RM4.23. I am not going to reiterate the fundamental selling points but my research.
2. The stock has been very resilient, even swimming against the tides
Some may think the stock has been weak in the past 1 month. However, I think it is very resilient against the tides, i.e.
a. SIGN's major and long-time shareholder's HSC Healthcare SB has sold over 6% of SIGN's total share in April. Yet, stock price stay flat and boring even under such a heavy selldown or, perhaps, perceived bad news.
b. Market was in correction last 2 weeks but SIGN is still resilient.
That shows there are strong buyers accumulating the stocks and they are not selling. Probably institutional investors as CIMB Research is promoting SIGN to local and overseas Fund Managers, or it could be intentional syndicate.
3. There was a reduced supply of stock
below RM2.40. Trading volume drop significantly last week. It was an early, though not solid, signal that most of the supply of stock have taken out from the market.
4. At the right time of market sentiment improvement
There is a great improvement in market sentiment today especially with smaller-cap stocks with higher number of winners compared to last 1 week.
5. Upturn in Volatility
Stock price's volatility is cyclical. It moves back-and-forth from low to high volatility. Volatility have been low in the past 1.5 months and Bolinger Bands have been squeezing SIGN to suffocation. Now volatility just swing from low to high. I expect it to remain for some time.
6. The coming Q3 FY15 result's effect.
Tentatively on 26 May (according to Bloomberg). I expect there will be extraordinary jump in revenue and perhaps significant improvement in profit margin. But this is expected (well, I did said "I expect") due to pre-GST delivery acceleration. What will happen will be the classical Sell-On-News scenario. In case you don't know, the stocks price is expected to
i. move up as intentional traders accumulate the stock in advance while attracting market's attention
ii. after result announcement the late-believers that "will knew for sure it would happen" (or Hindsight Bias) will become the buyers for the abovementioned sellers.
Want a Dry Run? Look at Matrix Concept Bhd.
If that happen. It is not necessary to sell it. It depend on your trading plan.
Hence, the recommendation is to buy at pullback, which is reasonably expected for a breakout after 1.5 months of limbo. Traders want to take profit fearing of getting back to limbo. Risks of this prediction is that the stocks are mostly in Longer-term investors hands, hence supply is not enough to overcome trend-followers' demand. As usual, trade carefully, have plan and stop loss.
PRIMA - if SIGN manage to secure any projects from PRIMA project, which they are eyeing according to CIMB's Research.
Significant margin improvement - due to lower material price or operation efficiency. There was a significant margin improvement in Q2 result. If the trend persists, it would be a good news.
Disclaimation : Despite high conviction, that only increase the probability of favorable outcome but not guarantee. So trade carefully, "Market is always right" but I am not.
Murphy Law - What can go wrong will go wrong.