Evening all,
I sincerely hope no one got long on Wilmar recently. An article in the Money section in the Straits Times reads “Share sell-off wipes $4b off Wilmar’s market value” .
If you scroll down slightly, you will see a recent post I made on Wilmar. I concluded saying it was a confusing case since the chart was telling me of both upside and downside. So now that some time has passed, what has happened? First, Wilmar did break out of the cup and handle pattern towards the upside – a 3.5% gain on the 15th. Price then slid a little to consolidate in what looked like an unconfirmed mini bull flag. At that time, I was seriously considering going long on Wilmar CFDs. Thankfully I did not. Just yesterday, speculators sliced Wilmar’s share price by 10%. If you are here to find out why, I am afraid you will not find a good answer. Th Straits Times did propose saying that it might have been the case of “buy on rumour, sell on news”. Just recently, Wilmar reported fairly positive financial results.
Anyways, being a technical analyst, what I can I then propose? Wilmar’s short rally was short-lived as sellers came out of the woodwork to slam Wilmar’s share price just as it hovered at the top of its large downward parallel channel. Compare the charts here, http://technicalanalysistalk.wordpress.com/2012/02/12/wilmars-chart-interesting-scenario/ , to the one I have below. Yes, strictly speaking, Wilmar did poke out of the channel. However, we have to allow for some volatility, so unless we see a clear, distinct breakout – which means price staying above a resistance level and even testing it and passing, not failing – it is best to still consider the resistance as valid. So technically speaking, the reason for Wilmar selling down is simply because of the downward parallel channel. If you look at history, you will see that Wilmar is certainly quite a volatile counter – check out the red arrows I drew below. Huge sell-offs occurred before. Even though I did not mention this in my previous post, it was something that lingered on my mind as I considered trading Wilmar on the long side. There was the risk that the parallel channel will hold firm, which then means sellers will come in and push down rallies. So in the end, i told myself to be patient and wait for a few more days before acting. Good thing I did just that.
So in conclusion, we take what we see. Wilmar trading back down inside the downward channel means continued downside for the weeks ahead at least. One interesting thing to take note of is the bullish crossover of the 50-day MA and the 200-day MA. I have been observing the relationship between these two popular averages. the technical term for it is the “golden crossover”, or if the 50-day MA crossed downwards, then it is the “death crossover”. I am not sure how many people have realised, but whenever I see a 50-day MA crossing above the 200-day MA, on quite a number of occasions, a sell-down occurs. Like in the case of Wilmar, the supposedly bullish crossover occurred just as Wilmar was hitting recent highs at $6.00. What happened next?
Of course, it is not just Wilmar, but many other charts also. Pull out your charts and take a look. Right now, I just took at quick look at Jaya, Ezra, NOL, Singtel, GoldenAgri (May, 2009), and STI (February, 2011 onwards). They all exhibit this event. So, I am starting to learn to be wary of “golden crossovers” since they do not seem all that golden anymore. But, in the long-run, the moving averages do prevail. It is just that in the short-term, when a bullish crossover of the 50-day MA above the 200-day MA occurs, do not be surprised if quick downside emerges.
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