Thursday, October 11, 2012

Go Long on BUMI

 The long term bearish wave on BUMI (LSE:BUMI) is being obviated as the bulls receive approbation to continue their normal activities. This means that BUMI stock is expected to continue to rise. This happens at the time when some other stocks are also rising. Nevertheless, positive biases are not the only cause of this bullish wave. If some stocks are moving up at the same time, it does not imply that a certain stock is moving up merely because the others are doing so.

Technical Forecast
There has been a long term bearish wave on the chart. On September 24, 2012, the price found a bottom at 120.00, after a gap down that occurred earlier that day. The gap was an exhaustion one. Therefore a gap fills up as the price journeys as influenced, whether it tardily goes upwards or downwards. For this trading method, if the price jumps up after bulls have carried out their activity; it reveals what neophytes are doing. If the price jumps down after bears have already carried out their activities, it reveals what neophytes are doing at that moment. In case you did not know, the major criterion in recognizing a gap that proffers the highest probability is a straightforward process of pinpointing the erroneous actions of novice traders. A trader who goes short after a gap occurs to the downside (accumulation territory), and in a bear market is committing a grave error, i.e. orders are opened by them when the market is poised to move contrary to their wishes.

For this chart analysis, the Exponential Moving Average 21 period and the Williams’ Percentage Range 20 period are used. After the bottom that was experienced towards the latter part of September 2012, the price consolidated to the upside. During the latter part of this week, a bullish engulfing pattern candle pushed the price above the EMA 21, thus enabling the price to close above that indicator. We can also see that the Williams’ % Range that was previously in the oversold region (below -80) has gone up steeply (now around the overbought region). There could be some temporary southward correction before the price continues to go north. While I was preparing this article, the stock was at 273.7. There are support levels of 273.00 and 272.50. There are demand zones at 274.50 and 275.00.

Conclusion: Majority think they know what the market may do next, despite the uncertainty of the future. Nevertheless, after the overextended bearish run that BUMI has experienced in this year, traders and investors would brace to make gains in this humble market. It is not until the stock has made substantial gains – following the period when some dither – that more investors would buy the shares and decide to hold them for a considerable amount of time.

This article is ended with the quote below:

“Losses are just a part of doing business and they will help protect your capital… Your thinking sets the stage for your results.  In order to change your results you must begin with your thinking.” - Dr. Woody Johnson

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Azeez Mustapha

Market Analyst, Trading Signals Provider and Coach

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