The Last Bearish Engulfing Pattern for Olam

18 December 2012

Introduction

After having created a false breakdown, Olam’s stock price continued to slide about 7% from SGD$1.50 on 6 Dec to SGD$1.39 on 17 Dec. A reversal pattern called “Last Bearish Engulfing” pattern was spotted yesterday and the reversal was confirmed today.

What is “Last Bearish Engulfing” Pattern ?

Engulfing patterns are reversal patterns. Normal Bearish Engulfing patterns will only occur at the top of a trend and Bullish Engulfing pattern, at the bottom.  The various different engulfing patterns and their trigger and failing conditions are as shown:-

However, when buyers and sellers were caught trading in the wrong direction,  they form "Last Engulfing" patterns; for example, the “panicked” sellers are selling their last stock position yesterday and thus creating a Bearish Engulfing patterns. It is true also when “hopeful” buyers are buying once more at the top, thus forming a Bullish Engulfing patterns at the top. Experienced traders will take the opportunity to either buy up the stock at the bottom or sell down the stock at the top when they see the occurrence of any “Last Engulfing Patterns (LEP)”.

However, LEPs are not exactly reversal patterns. Some chartists, after some countings, were of the views that LEPs are actually continuation patterns for 65% of the time. Unlike the normal Engulfing patterns, some traders were confused. They short or buy the stocks at the wrong time for a wrong price; as a result, there were no concerted effort to push the stock very far. Like the normal Engulfing patterns, LEPs will need confirmation candlestick to determine the direction.

Trading Recommendation

Because LEPs are not real engulfing patterns, it is likely for Olam to go as far as testing the major resistance line shown red in the attached. It is therefore not recommended to enter the market, not until the price has crossed above the major resistance line with +DI also crossing above –DI, which are signs for a full recovery.

Update 1:  28 December 2012  Last Bullish Engulfing Pattern

After having created a Last Bearish Engulfing pattern on 17 Dec,  Olam's price rose about 10% from 1.39 to 1.56 in a week.  Today,  it formed a Last Bullish Engulfing pattern at the top as shown.

The textbooks are mixed about this Last Bullish Engulfing pattern.  Some said this pattern will break up most of the time;  others said that this is a bearish reversal pattern that will break down eventually as shown in this chart.

Usually when rights issue is being issued, the stock price will fall due to price dilution on ex-Rights day.  However,  Olam's price  did not drop as if it was being supported due to prolonged down trend.  Last Bullish Engulfing pattern will need confirmation to determine the direction.

Update2:  7 Jan 2013 Last Bullish Engulfing with Bearish Harami

After having formed the Last Bullish Engulfing candlestick on 28 December,  Olam's price rose about 10% and formed a Bearish Harami on 4 Jan 2013.  It is as if the investor knew the price would fall as Temasek would not buy as it took up the remaining Rights issues.   The Bearish Harami reversal pattern will be confirmed if today is a down day and Olam's price will continue to fall and may go even lower than the last low.

Disclaimer:   Please verify the information if they are to be used for trading purposes

A False Breakdown in Olam International?

6 December 2012

Introduction

Olam was attacked by Muddy Waters who has a “strong sell” rating because Olam has accumulated debts (current and long term) of over SGD$8.0 bil. Olam counteracted the attack by raising more fund with the backing of Temasek, who has 16% share in the company.

Olam’s stock price dropped from a high of about SGD$2.00 in Oct 2012 to the present level of SGD$ 1.45. Olam was expected to form a bear flag but today’s trading showed otherwise. It went below yesterday's close with lesser trading volume.  Is there a false breakdown in Olam’s trading?

What is a False Breakdown?

A false breakout or breakdown is usually referring to stock price that wanders out of a range,  making  temporary price movement up or down but soon returns back to its original position. This usually happens when stock breaks a support or resistance lines without any support of trading volume to sustain the move.

One example is as follows

Why?

In the case of a false breakdown, the shortists either run out of fund or not aware of prevailing news.  They  continue shorting the stock until the price started to show “exhaustion” without much support from the other shortists. When that happens, the bulls will  enter the market forcing the shortists to cover their shorts. The same will happen when there is a false breakout except it is in reverse.

Example?

Olam has a living example. In May 2012, Olam’s 3rd Quarter profit ending March 2012 dropped 23%. The market took it for spin. Olam’s share price dropped about 30% from about SGD$2.30 to SGD$1.60. Unknown to many, Olam’s June report showed an operation profit of SGD$350 mil which is only 4% less than that of 2011. The stock recovered much of its losses to end at about SGD$2.10 in August.

Olam started out with a bear flag having a target of around SGD$1.70.  When the target was reached, the shortists continued shorting the price down to SGD$1.61 with 2 false breakdowns; one on 24 May and the other on 1 June. Unfortunately, there were no volume support for both breakdowns. Olam soon recovered when there was a price exhaustion,  creating a candlestick gap followed by a bullish engulfing candlestick reversal pattern. The shortists were forced to take cover after that.

What Happened Today?

With an unsuccessful attempt to push the stock price to below the last low of SGD$1.50 yesterday, the shortists made another attempt today. This time,  they managed  to push the price to close at SGD$1.45;  unfortunately,  there was no volume support again or volume was lower than the last 2 sessions.

Is it really a False Breakdown?

It is a false breakdown according to the text book. However, unlike the one in May 2012, this breakdown occurs after having broken down the long time support of a symmetrical triangle with a very heavy volume. The situation this time is different. It is likely if there is any recovery, it will have to test the long time support of the triangle which is now becoming the resistance.

 

Time to Enter the Market?

It is still pre-mature to enter the market and shore up the shares. This is because the following indicators have not shown any sign:-

a) The Average True Range (ATR) is still rising

b) The Directional Indicator ADX is just flattening out;

c) The Stochastic still hugging the oversold line and yet to recover

The price may wander down somemore with another false breakdown just like in May 2012.

What are ATR, ADX and Stochastic?

They are basic indicators that show the stock’s volatility, the momentum and the price movement respectively. ATR will rise when there are abrupt changes in the price. ADX will rise when price picks up the momentum and then accelerate.  Stochastic become oversold when it goes below 25% and overbought when it goes above 75%.

How to Monitor?

Take the May 2012's  price movement as an example. The ATR started flattening out and went down from mid May 2012. At the same time, ADX continued to rise until 1 June 2012 together with stochastic going on its way up soon after. When the price was about to recover, a bullish engulfing candlestick reversal pattern appeared after showing an "exhausted" candlestick gap.  

Similarly, ATR, ADX and stochastic together with candlestick patterns can be used to monitor and confirm if the present breakdown is false and also when the price will recover.

After Note:  One could also use Relative Strength Index (RSI) to track the stock movement.  Presently,  the RSI is showing a positive divergence,  starting to climb up the ladder.  Its performance will improve if it can climb above 30.

Disclaimer: The author has no position in Olam. Please verify the information if they are to be used for trading purposes.

Is Olam International Falling Apart?

5 December 2012

Introduction

Olam International (ticker O32 in SGX) was attacked by Muddy Water (MW) who had a “strong sell” for this counter. MW also claimed that the capital (bonds and warrants) recently raised by Olam "solve nothing";  it only prolonged the debt problem. Some market players also had this perception and was of the view that the recent Olam’s effort to raise capital had also the diluting effect. Lets examine Olam’s future from the charts.

The Olam’s Chart

The Olam’s trading chart will show that Olam’s price has been going down trend since NOV 2010.  It did not stop sliding.   Will it continue to slide?

The Big Triangle Trading Pattern

Since Dec 2008, Olam has been forming this big triangular trading pattern. The price cut below the pattern on 27 Nov 2012 when MW attacked it by saying in one conference that Olam would be in financial trouble. Though the price recovered the second day, it soon dropped below again. 

On 4 December 2012,  Olam announced that one of its White Knights, the Temasek of Singapore, was backing its fund raising of SGD$1.50 Bil. But the price failed to pickup;  instead, it closed at the day's low of 1.60,  below the triangular red line.

What’s ahead?

It is not immediately clear if Olam price is forming a bear flag although there are symptoms such as falling volume and negative MACD etc. It will be clearer if the future trading prices do not go above the triangle red line with the price,  forming rising channel or triangle trading patterns and the trading volume,  continuing to fall.

Trading Recommendation

Unless Olam can show that it can make good earnings in the future or its knights can shore the price up, it is likely that the price will tank.  This counter is only good for day trading at the moment.


Disclaimer: The author has no position in this counter. Please verify any information if it is used for trading purposes.

Insulation for Reef Tanks

2 December 2012

Introduction

Many reefers use chillers to cool their reef tanks to mimic the environment of the living corals and other ocean creatures. The tank is usually kept in temperature around 25-28C. This article will examine how much energy can be saved by insulating the tanks.

Heat Gains

One of the heat gains of the aquarium is through the glasses which have thickness varies according to the tank capacity. The thickness ranges from 5 mm for a 2 ft tank to about 12 mm for a 6 ft tank. The heat gains or energy losses will vary according to the thickness of the glass; the thicker the glass, the lesser the energy losses. The heat gain through the exposed glasses can be responsible for 50% of the energy losses for a 2 ft to about 12% for a 8 ft tank.

Energy Savings

As aquarium operates 24 hrs/day, the heat gains by the tank is non-stop over the period. These heat gains will have to be removed by chiller; otherwise, the cooling will not be effective. By insulating the tanks with ¼” thick polystyrene foam for all sides except the font viewing panel, as much as 30% of the energy can be saved and hence, the cooling bills.  The thicker the insulation, the more the energy or cooling bills will be saved.

How Much in $ and Cts?

Assuming one has a ¼ hp chiller and a 3 ft tank (36x24x24), the energy saving will be about 10% of the chiller running bills. If we further assuming that the chiller runs about 8 hour per day, the chiller kwh consumed will be about 370watts x 8 hrs/day x30 days = 88 kwh per month. With rate @ SGD$0.2727 per kwh, the cooling bill will come up to about SGD$ 24/=. The saving could be as high as SGD$ 2.50 per month.

Foam As Backdrop

This reefer uses foam to mimic the rocks as a backdrop. This arrangement will improve thermal insulation and reduce heat gains or energy.  It would be more effective if he can also seal the edges of the foam so that there will be no water movement in between the glass and the foam. 

 His tank finally looked like this

Other Relevant Sites 
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