Technical Analysis of Islami Bank: Part Two on 20 Jan 2017

Technical Analysis of Islami Bank: Part Two on 20 Jan 2017

This is no buy/sell recommendation - just a trial to see if Technical Analysis (works to an extent) in Dhaka Stock Exchange.

In this article, I will also write about the benefits/advantages of Technical Analysis. Please forgive the pompous approach.

Before going into this analysis, I would like to evaluate the previous analysis of Islami Bank made on 2 Jan 2017: https://imti77az.blogspot.com/2017/01/technical-analysis-of-islami-bank-on-2.html

Forecast of Re-test was at 29.60 – Islami Bank touched 29.6 on 3^rd Jan and then went on up move. It was perfect. Moreover, the generous market again gave an opportunity to buy at 29.6 on 10 Jan.

Forecast of Move – I had (conservatively) mentioned that it would initially move to 35 and then? It actually went around 38 in this move. I would say a good projection.

Assuming one got in at 30 and exited at 35, its 16% profit in 10 trading days; if you got out at a higher level, well done.

Only problem was the candle on 8 Jan – it seems there was a “false” high of 33 that spoilt the candle – was it to put off Technical Analysts? Even the candle on 9 Jan was a bit strange. But I will let it go.

It was the perfect Break-out, pull-back, re-test theory in practice. It lets the Technician optimize the trade in the shortest possible time. It is one of my favorite sayings – Technicals have a faster clock speed than Funda’s (on a different note, those working with strategy/innovation could read the very good book: Clockspeed by CH Fine).

Another thing is that major news came on 6 Jan about management change. The market took about a week to price it in – the up move indicates that the market took it positively.

Interestingly, the charts were much bullish earlier – the charts were ahead of reality – and indicating positive movement. In business terms, it is called early-mover advantage. So if you can move ahead of the market, you can enter at a lower price and you can be ready to ride the wave, when it occurs.

Now for a more detailed discussion on the possibilities of the next moves from a Technical Perspective (I will try to keep it short though).

Although it’s an adjusted Weekly chart, we can see two big waves with almost perfect Fibo retracement – one from May 2015 and the other from May 2016. According to Dow Theory, there is another Big Wave coming . . . Actually it has been forming from Q4 ’16 onwards.

*Note: The Big waves are made up of small waves . . . blah blah blah . . . I will skip the Theory! For those interested, please read on Dow Theory and Elliot Wave Theory.

Another thing I have not shown here is a possible Inverse Head and Shoulders pattern in the 3 year Un-adjusted Weekly chart (it is like imagining shapes in the clouds!) For those interested in H&S, its Low is 15.20 and the approximate Neck-line is around 30 - that could guide you to estimate the initial target ;-) It sort of even followed the classic High Volume Break-out and low volume pull-back to the neck line before preparing to fly away on increasing volume . . . 

Now to the Recent Daily Chart: After its first move, Islami Bank would likely retrace near a Fibo level before making the second up move.

In the daily chart, we can see first Fibo retracement at 36, the second at 34.6 and another at 33.5 and so on. If it retraces on declining volume and then turns from the Fibo levels, we could be in some exciting times.

I would set Stop Loss at 1.5 points below entry price.

Two things I would like to highlight here:

1. When the Funda’s and Technicals meet, one gets synergy.

2. The other is profit maximization in a bull market: Buy low and sell high investors (holders in my view) also make hefty profit. But the fast Technician can sort of make at least 3 trades in a full bull run and thus, generate more profit. And the Risk-taking Technician also makes trades during the retracement in other items! They follow the Principle of keeping no cash idle. In a bull market, it is about maximizing . . . It also depends on the risk appetite of the individual.

*(Note: TA is not a Science; it works 60-70% of the time so don’t be hooked on to the exact numbers – please allow some flexibility).

But Islami Bank is sort of technically perfect till date.

     Will it disappoint?

          Let us find out . . .