The decision to enter a position in Wilmar has been quite paradoxical. I have said that in the short term, the macro situation is overbought and there will be some sort of correction. However, I also mentioned that the mid-term situation looks quite optimistic and in my opinion, stocks seem to have bottomed out. Regardless, the reason I bought Wilmar has nothing to do with opinions. I will break down the analysis into different parts.
Trend Direction The 12w crossover with the 26w crossover has happened and it indicates that the price increase in recent weeks is faster than the average pace in the longer term. This is just an indication that prices are steadily recovering, which is the main reason why I decided to enter.
Trend Strength It might not be as indicative as most would believe, but I always use the ADX as a tool for analysis, what good is knowing a direction of a trend if we do not know the strength of it. From the 14w ADX line, it can be observed that it is below the 20 mark. Trend strength is relatively weak at the moment. Trend strength is a cyclical process, similar to momentum, and at this point, it seems to be lowest. I am not guessing anything as ultimately trend direction is the main criteria while the remaining indicators are just supporting rationalization.
As i was mentioning, not only does the trend strength seems to be bottoming out, the -DI line (often an indication of the strength of downtrend) is gradually going down as well, with the +DI line going in the opposite direction.
If there were any indication of worry, it would be the fact that all three lines are hovering in the lower region, which might indicate that trend strength is still low at the moment.
ATR An indication of volatility, it is now the bane of most trend traders (unless you are a swing trader). ATR has been plunging sharply since its lowest point while prices are steadily going up. This indicates that people are reacting less violently and confidence in stock is slowly creeping in.
Momentum Momentum has been building up for the past few weeks as observed from the chart. Any retracement (short term trending) has been shortlived.
Volume Volume trending has been an issue though as volume is decreasing with price increase. This is often the indication of a down trend.
Conclusion It is definite that the short term trend is on the up and the middle term trend is showing good recovery. However, the recovery of the long term trend remains in question. Nonetheless, the moving average has indicated a crossover, triggering a buy signal. The trend strength supports the general analysis of the situation and decreasing ATR aids the cause as well.
All in all, it is a counter with seemingly lesser downside risk.
Labels: Wilmar |
