This week, Hong Fok catches my attention this week because
a) It has risen approximately 33% in 12 out of the past 13 trading days from an intraday low of $0.685 on 28 Feb 2019 to close $0.910 today. It is noteworthy the 13th day is at an unchanged level. In other words, Hong Fok has not had a down day since 28 Feb 2019;
b) At $0.910, this is near its 25 Oct 2015 high of around $0.91-0.920. The previous high which is higher than $0.920 occurred in Sep 2014. I.e. Hong Fok is trading near a four plus year high level;
c) Based on Chart 1 below, Hong Fok has been trading in a nine-month range $0.640 – 0.730 from Jun 2018 to Mar 2019. An eventual measured technical target arising from this chart breakout is around $0.820 which has already been attained;
d) Indicators are looking extremely stretched. RSI closes at an overbought 92.2, a fresh 10-year high. MACD closes at 0.047 today. At 0.047, this is the 2nd highest level except for the period June – July 2014. MFI last closes at 97.9 (max is 100). ADX last trades at 48.5 amid sharply positively placed Dis.
Near term supports: $0.880 / 0.860 / 0.840
Near term resistances: $0.910 / 0.920 – 0.925 / 0.950
Chart 1: Hong Fok is up 12 out of 13 trading days!
Source: InvestingNote 19 Mar 2019
As usual, there are risks involved in stock trading. I have listed examples of some risks, but it is noteworthy that the list below is not exhaustive.
Examples of some risks
a) I have initiated short positions in Hong Fok based solely on a technical perspective, and only aim for a few bids of profit, if any. I may cut loss if the trade does not go according to plan;
b) The up-move may be fuelled in part by the recent insider purchases and share buybacks conducted by the company. There may be buying support if company continues to do share buybacks;
c) There is no rule that RSI cannot go above 92 or even 95. However, on the balance of probability, it is less likely that Hong Fok can keep on rising without some form of pullback as overbought pressures escalate;
d) There may be reasons (known to the market, but unknown to me) on why Hong Fok keeps rising;
e) Other small cap property stocks such as Tuan Sing have also moved up, but the quantum is significantly lesser than Hong Fok;
f) I am not familiar in Hong Fok and have no idea on their core business and fundamentals.
In view of the above, there is no doubt that Hong Fok is on a strong uptrend. However, it seems likely that near term potential upside may be capped, as overbought pressures escalate. Thus, I have initiated a short position in this stock with the aim of getting a couple of bids of potential profit if any. This is a trade based on potential retracement, as overbought pressures escalate and not a trend reversal play. Nevertheless, there are significant risks (highlighted above) which we should be aware of. It is noteworthy that as I am a full time remisier, I can change my trading plan fast to capitalize on the markets’ movements (I am not the buy and hold kind). Readers should exercise their due diligence and evaluate carefully.
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