SI Technical Analysis: UMS In Bear Market Territory
As a follow-up to what we wrote about UMS Holdings (UMS) in issue 570 of Shares Investment, we deem it fit to make a call based on technical analysis – for the short-term traders and long-term investors.
UMS has been a darling of investors who appreciate the growth and dividend-paying nature of this stock. However, its share price has tanked quite badly since trading as high as $1.175 on 14 August. We wrote that “the sharp fall for no apparent reason has bewildered many, with some investors pointing the finger at the group’s proposed one-for-four bonus issue that came along with the results release’.
Could it be a case of sell on news? Or are investors concerned about the shares overhang that the bonus issue cause? Maybe savvy investors are forecasting a slowdown in the semiconductor industry hence selling ahead of other less-informed investors?
Whatever the reason, we look at the charts and do not particularly like what we are seeing.
Since reaching its historical high of $1.27 twice – on 26 May 2017 and 2 June 2017 – the share price of UMS has not been able to reclaim its past glory. The first attempt to rally in late June from a low of $0.935 to a high of $1.145 on 20 July lost steam and a pull back to $1.025 on 28 July was followed by another short rally to the high of $1.175 on 14 August.
After 14 August when the company announced a set of sterling results and the bonus issue that we reported on [insert link to SI research], its share price fell like a pack of cards to hit as low as $0.915 on 6 September. This does not augur well.
Its recent highs were systematically lower than the previous highs and the share price has shed some 28% since its $1.27-peak! This is bear market territory. Even using its most-recent high of $1.175 on 14 August to its low of $0.915 on 6 September, the loss amounts to 22% – also a very clear bear market territory signal!
Moving Averages Signal Death Crosses
Using a simple moving average analysis, sell calls were triggered on several occasions! The first danger sign appeared when the 19-day MA cut the 50-day MA in early July triggering the first death cross. Although there was a false dawn when the 19-day MA tried to cut the 50-day MA from below on 11 August, the sharp fall on 14 August negated this signal very prominently.
Soon, the 19-day MA cut the 50-day MA once again on 22 August followed by the 19-day MA cutting the 100-day MA from above on 28 August. Once the 19-day MA cuts the longer period MAs, it is a clear sign that the chart pattern is extremely bearish. As we write, we cannot help but notice that even the 50-day MA is forming a death cross with the 100-day MA – the shorter period MA has cut the longer period MA on 6 September!
Relative Strength Index/Stochastics Look Weak
While some may argue that the relative strength index (RSI) and the stochastics are not very good indicators, we feel that it is the easiest to use for beginners of technical analysis. In truth, one needs to use these indicators, coupled with some others, and a lot of experience to be able to tell the future direction.
From the RSI chart, we can tell that UMS is trending towards being oversold again even after it has rebounded from an oversold position. The share price has tended to rebound after hitting 30 but it is now at 40 but the share-price action suggests that buying support is weak and RSI reading could go below 30 during the next correction.
Similarly, the stochastics have started to trend up but losing momentum despite the share price not moving higher. This suggests that the share price may have more room to fall even though indicators suggest that it is still trending upwards. Investors must note that stochastics are lagging indicators so it will only reflect on your charting software when the price has fallen.
Support, Where?
If you are looking for a support level, there is a support between $0.87-$0.89 where a gap can be found. Once the gap has been filled, look out for signs of stability before taking on positions in this stock. Below this level, the next meaningful support can only be found at $0.78 – the high that was formed in June 2014, which is coincidentally the same time when the company’s share price fell sharply after announcing a bonus issue. Coincidence?
Well, in June 2014, the share price fell from a high of $0.78 and found a bottom six months later in October when the share price troughed at $0.425. That was a whopping 45.5% loss.