DESPITE making some healthy headway, Pharmaniaga Bhd ’s (code: 7081) retracement may fail to break through the overhead resistance in the immediate term.
As the stock approached the resistance of RM2.50 on Friday, there were indications that the rally had ended and the stock was entering consolidation mode, ending hopes of a challenge to the 100-day simple moving average (SMA) at RM2.57.
As at Friday, the momentum indicators were seeing overbought conditions. While the 14-day relative strength index remained healthy at 79 points, the slow-stochastic momentum index was showing signs of waning.
While pegged at overbought conditions at 82 points, the percent K oscillator of the slow-stochastic index had dipped below the percent D oscillator in a bearish signal. The index was headed for a crossing below the overbought line, suggesting that it was neutralising and signaling the start of a consolidation phase.
The daily moving average convergence/divergence (MACD) line however continued its advance as an uptrend had developed following successive price gains subsequent to the stock pushing off the RM2 low on April 11. The MACD suggests the current uptrend remains intact and gives hope that following a brief consolidation the rally will continue.
In the event of a continued advance, the share price is likely to face stiff opposition at the 100-day SMA mark.
Short of a strong catalyst coming into play, the stock is unlikely to arrive at the 200-day SMA, which has remained intact since May 2018. Pharmaniaga remains trapped under a long-term downtrend, stretched over four years, which would suggest that a long-term recovery will not be sustained short of an outlook-changing catalyst.
Should the share price turn back from the immediate resistance at RM2.50, it will retreat to the immediate support at RM2.20, which is near the converging 14- and 21- day SMAs. Below that, the share price could return to its recent low of RM2, and in line with the prevailing long-term trend, break through to continue its descent.
The comments above do not represent a recommendation to buy or sell.
https://www.thestar.com.my/business/business-news/2019/04/27/eye-on-stock---pharmaniaga/
