Catching the Falling Knife Heroes & Zeroes

The month of October had not been too generous for us as investors, even though this is our Budget month. The opening index in October is 1,658.36 and closes at 1672.46, it moves up 0.85%. And in the coming month, November will be a critical month for the US Presidential Election. And for us in Malaysia, will the windows dressing happening again in this year end? 

Catch the falling knife, who will be injured?

In this post, we will talk about a few companies which had posted a not so profitable Quarter Result and the share price dropped immediately in the following day. What happened in the second day (T+2)? But before that, this post is just a case study, this is not a post to urge you to catch the falling knife. Do not be a HERO if you are not well trained or well prepared...

The possible reasons that trigger the investors to panic sell, therefore the share price drop drastically are:
1. Something happened to the Management Team;
2. The Quarterly Result is not as good as expected.

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Mostly the share price will be falling down on the next day and it will continue to fall even more. And of course, there are always HEROs who are brave enough to catch the falling knife. But can we be one of them? Or we might not have the correct timing, ended up, we hurt ourselves. Thus, there are a lot of ZEROes who failed to act in the way they supposed to act.

Just some reminders for you and me. Something for us to ponder before we try to be a HERO. If we:
1. Do not have enough time to monitor the stock;
2. Are not so good in TA and charts;
3. Do not have much confidence to operate;
4. Are afraid of losing money;
Then, DO NOT try to be a HERO. There are 950 stocks in our Malaysia Market, why bother those few counters? Of course, if you have a strategy on operating those counters, you must also respect your strategy. Remember, the reason you sell is the reason you buy. Or else, let's keep it simple, please avoid the falling knives.

In the month of October 2016, i notice that there are a few counters announced below expectation's QR. Let's go through those examples.

1. FIBON

On 26 October 2016, FIBON announced its Q1 result.

FIBON Q1 2016 Result

Revenue slight increase YOY +5%, QOQ -26%. Net profit decrease YOY -127%, QOQ -55%.
Lets look at the chart.

FIBON

On the next day (27 October), the share price gapped down and opened -6.6%. Look at the volume, the volume is quite huge on that day. For sure there are some panic sell and some heroes there. In the end, the candle formed a hammer, by right, in TA  (Technical Analysis) terms, a hammer is a reversal pattern. But when we look at the angle of FA (Fundamental Analysis), its revenue and net profit dropped. In terms of PA (Projection Analysis), this signifies a weak quarter and most probably in the next coming quarters will be having weak quarters as well.

In the next few days, it continue to drop. However the chart had now entered a oversold zone, ready to rebound anytime.

2. HOMERIZ

On 27 October 2016, HOMERIZ announced its Q4 result.

HOMERIZ Q4 2016 Result

Revenue decreases YOY -12%, QOQ -19%. Net profit decrease YOY -45%, QOQ -41%.
Lets look at the chart.

HOMERIZ

On the next day (28 October), the share price gapped down and opened -4.7%. Again, look at the volume, the volume is huge too. The candle also formed a hammer but in the next few days, it continue to drop. Now the chart seems like forming a bullish harami.

3. NYLEX

On 26 October 2016, NYLEX announced its Q1 result. 

NYLEX Q1 2017 Result

Revenue decreases YOY -18%, QOQ -7%. Net profit decrease YOY -264%, QOQ -1280%. 

NYLEX

On 27 October, the share price gapped down and dived opened -10.3%. Again, look at the volume, a lot of transaction had been transacted. The candle also formed a hammer but in the next few days, it continue to drop. Now the chart seems like forming an inverted hammer.

4. PENSONI

On 27 October 2016, PENSONI announced its Q1 result.

PENSONI Q1 2017 Result

Revenue decreases YOY -12%, QOQ -17%. Net profit decrease YOY -66%, QOQ -234%.

PENSONI

On 28 October, the share price gapped down and dived opened -5.4%. Look at the volume, a lot of transaction had been transacted. The candle formed a hammer but in the next few days, it continued to drop. The revenue and net profit actually dropped a lot, which is not a good sign. The share price had been in oversold position for a few days, technically it will rebound soon.

5. GADANG

On 27 October 2016, GADANG announced its Q1 result.

GADANG Q1 2017 Result

Revenue decreases YOY -43%, QOQ -138%. Net profit decrease YOY -47%, QOQ -83%.

GADANG

On 28 October, the share price gapped down and dived opened -8.8%. Look at the volume, a sky high of transactions. The candle formed a hammer but in the next few days, it continued to drop. Today the candle showed a bullish engulfing, maybe GADANG is ready to rebound.

6. 3A

For 3A, it is not because of poor QR. It is because of the management issues. Securities Commission had charged 6 individuals for insider trading[1]. This is a very serious offence and should not be done at all. Lets look at the share price too.

Snapshot from The Edge Financial Daily dated 26 October 2016[1]

3A

The news was out in the paper on 26 October 2016. On that day itself, the share price gapped down and break its previous support of 1.27. And it continues its downtrend and seems to find its base at around 1.19.

7. SUPERMX

For SUPERMX, on 15 December 2014, the similar case happened. The CEO was charged with insider trading and the share price fell 16.5%[2]. 

From the Star[2]

SUPERMX

Summary:

If we are not confident to be a HERO, then, we better dont be a ZERO too. Do not try to catch the falling knife unless we have a strategy. For companies posting a weaker QR, on the next day, normally the share price will gapped down and dived. We should monitor how long the stocks will take for it to cover up the gap. As for managments' insider trading, it will also cause the share price to gap down. These are just examples for case studies, please consult for financial advices if you are serious to play rebound. Must be very discipline...

Another lessons learnt is that, we must always keep an eye to the Bursa Announcement and also the news. We need to be more alert on the shares that we are buying or holding. Thus please perform a thorough check on the FA and TA, constantly review and monitor the news, and take profit or cut loss when necessary.

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Let's Ride the Wind and Gainvest

Gainvestor 10sai

2 November 2016
12.25am

Info: 

The Gainvestor Sharing Session in KL dated 5 to 6 November 2016 is CANCELLED due to unforeseen circumstances. Currently i am preparing for a free sharing session in KL. I will keep posted or you can click HERE for the updates.

Sources:
1. The Edge Financial Daily dated 26 October 2016.

2. http://www.thestar.com.my/business/business-news/2014/12/16/supermax-ceo-charged-with-insider-trading-glove-maker-shares-fall-165-following-news/

http://gainvestor10sai.blogspot.my/2016/11/catching-falling-knife-heroes-zeroes.html