IndoAgri broken down from a bearish pattern?

Hello traders/investors,

I have a review of IndoAgri followed by an analysis for this evening. In the previous posts, I spoke about a huge cup and handle pattern together with a target of about $3.20. Sadly, IndoAgri has made post-crash highs of close to $3.00, and recently IndoAgri’s stock price has met with selling pressure. I will consider the cup and handle as somewhat successful though.

Now for the latest pattern on IndoAgri’s chart.

Following the recent drop, I have decided to take a good look at IndoAgri’s chart. First up, I have drawn a confirmed head and shoulders pattern. What I look for in head and shoulders pattern is 3 regions of price action. What that mean is, I want to see price moving about in a range, then a rally follows. Price should stay there for some time, before retracing down to form another region that is just about where the first region was. After that, I just need to wait for a breakout as confirmation of the pattern.

This head and shoulders in IndoAgri, 5JS.SI, dates all the way back to July of 2010. Since this pattern is considered large for me, I will take the height of the whole pattern and project it downwards to get a target. What do we get? $1.25. This certainly is a long way down, which should mean there is probably something that has happened, or is going to happen. Maybe some of you can enlighten me. A counter should not drop 20% in a week for no reason.

Next, I took out some fibonacci lines to see where the important levels are at. (Please click on the chart below for a better look at the fibonacci levels). Right now, price will be just above the support level of the 50% line -$1.67. If this head and shoulders pattern turns out successful, price should go on to test the 61.8% level of about $1.37 before the year ends.

Let us take a look at some indicators, just to see if there is more reason why we should be bearish on IndoAgri. First up, I have the GMMA, which gives you a picture of how the different moving averages are doing. There are two sets of averages – one set of “fast averages (in red)” and another set of slow averages(in green). I find this indicator more suited for longer-term outlooks. I treat the two sets of moving averages like any two moving averages. Once the faster set of averages have all crossed below the slower averages, this is a strong bearish sign for me. In this case, this bearish indication showed up in January of this year.

Next, I have put up the MACD indicator. Straightaway, we can see that the MACD is below the centreline – obvious bearish sign. I want to show all of you something in history which will show you how this indicator can be best used. If you have read technical analysis books on indicators, you will learn that authors usually tell you that the best signal that the MACD gives are convergence/divergence signals. In this case, take a look at a region that I have highlighted on the chart below. During the last few months of 2010, IndoAgri made new highs, or at least, price was in a general uptrend. However, if you look at the MACD indicator, the MACD was making lower highs. In other words, the MACD line was in a general downtrend. When price is heading upwards and the indicator is doing the opposite, this is called a divergence. As chartists, we take this as a bearish sign. In IndoAgri’s case, the MACD proved itself right – the downtrend triggered, and now IndoAgri’s year-to-date share price performance is negative 42%.

That is just about all I have to say for IndoAgri. Because of the head and shoulders, I will be looking for IndoAgri to head downwards some more.

All analyses, recommendations, discussions and other information herein are published for general information. Readers should not rely solely on the information published on this blog and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.

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2 Comments

  1. Ray Tan
    Posted November 24, 2011 at 12:11 PM | Permalink | Reply

    Very accurate!

    Is it time to buy yet?

    • Administrator
      Posted November 25, 2011 at 5:58 PM | Permalink | Reply

      Ray,

      I’ve been quite busy the past week, but I will probably put up a post on IndoAgri over the weekend. For now, it does seem like IndoAgri has found a support level. I believe a lot of it depends on the general market. A number of stocks seem to be at a consolidation phase now – much like IndoAgri – so a decisive move in the indices should impact IndoAgri’s share price. Stay tuned for my next post.

      Regards.

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