Monday, 1 April 2019


Gross profits : RM2,600
Return on investment (ROI) : 11.74%
Duration : Intraday, 21 minutes

In Malaysia, famous new board appointees and stock rallies go hand in hand. We can count such instances one by one, but we'd quickly run out of fingers. Whether it's Najib's son, Muhyiddin's relative's, or Tun Mahathir's children, historically we have seen so many stocks go up simply because a prominent name surprisingly turns up at a company.

What kind of company? They tend to be small, had seen better days, loss-making, and firmly belong in the penny stock category. We've seen stocks like EASTLANDS, EDEN, THRIVEN, and others move due to the new or existing connections with these political type figures. For today's TradeOfTheWeek, we present you with the latest one:

On 29 March, the stock moved quickly from the previous day's closing of 13 sen. If we were smart, we would've monitored the stock from the get go. But we only found out about the appointment after the stock had hit 30 sen within twenty minutes; a frankly preposterous 130% rally. 

Don't get us wrong. We love electric buses. But this trade is not about fundamentals. It's not even sentiment-based. To us, this is where we get to flex our technical trading skills.

But first, we had to accept that we're attempting something just as preposterous : buying into a stock after it has rallied by 130%. In a day. 

To survive this high risk, high volatility play, we had to take a very close look at the price and volume activity, as we will demonstrate.

This is an extremely short term trade which allowed us to exit with outsized profits. In all, it took about 20 minutes.


So by the time we decided to jump in, the stock had already fallen off its highs. From 30 sen, presumably due to the early stage illiquidity combined with panic buying, people came to their senses and sold off the stock. 

GETS fell all the way to 21.5 sen before it suddenly found some support. This was when it started to get very interesting for us.

5-minute chart for GETS on 29 March 2019. 9:00AM to 10:35AM. Note the 'U' shape, indicating a recovery rally.

Without sugarcoating it, we were trying to find the bottom. We were also trying to time the market. These are two things that we don't usually do (they tend to be very speculative and do not offer a discernible 'edge'), but in this instance they are useful.

Notice the big black candle earlier? That's the peak panic selling point, in our view. While it's plausible that the stock can continue falling to 20 sen and below, it simply didn't. In fact for the next 20 minutes we identified clear accumulation activity at the 23-23.5 sen range. This does not confirm the rally is continuing, but we made preparations to go in.
Look at this block, representing a trading range of between 23.5 sen and 25 sen. We eventually decided to go in at 24.5 sen. The large block that we acquired represented our convictions. However, we were ready to bail out if the stock falls back to 23 sen. In essence, that's our 'stop loss point'.

Also, we came to a point of conviction, allowing us to put on a trade : if the stock was to break 20 sen and fall further, it would have done so already. It didn't.

Within those 5-minute increments, you can see that the price is inching up. We anticipated that the recovery will either happen quickly, or it won't. Note that we view this 'block' as a physical barrier for compartmentalising our trading idea. Our range of buying, and stop loss point, are represented within this block. If prices move upwards and out of the block, we can start worrying about taking profits.

About 20 minutes later, the stock advanced upwards, breaching the block. We had planned to take at least 10% returns at our exit point.We certainly did so at 27.5 sen. Naturally, the stock hit higher points later that morning, but our participation is complete (we try not to chase ever higher prices).

The success of this trade really boiled down to these factors:

1) Experience (we have seen this type of activity in other stocks before).

2) Technical analysis (an understanding of price and volume activity).

3) Knowing when to exit (instead of staying and risking volatile fluctuations in our paper profits).

If you'd like to trade this way, think of these movements as blocks when determining your entry points, exit points, and targeted gains. Either your expectations are met, netting you good profits, or they aren't. At least you won't have to wait too long to find out. 

More Tales By The Pelham Blue Fund