Eye On Stock

DRB-HICOM Bhd’s (stock code: 1619) recovery picked up pace on Friday as it ended on a positive note at RM1.57 after rising as high as RM1.64 earlier in the day.

The counter has made some headway after over two months of sustained rebound.

At yesterday’s closing price, the stock had returned to March 13 levels, when the counter left a downside gap following a spike in negative momentum.

The resistance is pegged at RM1.67 as the share struggles with closing the downside gap to extend its recovery. The resistance would also mark a 50% recovery of the losses seen between the stock’s recent high on Feb 17 and its trough on March 19.

Above that, the 100-day simple moving average lies near the upper limit of the gap, and continues to exert downward pressure on the share price. Thus the stock has reached a critical juncture in its recovery phase as failure to breach the immediate hurdle would see the stock subside in consolidation mode or enter a correction.

Looking at the technical indicators, there seems a likelihood that the stock will enter a sideways trading channel while the indices neutralise from their overbought levels.

Pending a positive catalyst, investors could leave the downside gap unfilled while the dominant negative trend eases. The slow-stochastic momentum index has crossed into overbought territory at 82 points while the 14-day relative strength index has also pushed into overbought conditions at 72 points.

While the daily moving average convergence/divergence (MACD) line shows a short-term uptrend, the crossing above the zero line remains unconvincing as the MACD could return under with the onset of profit-taking.

A sharp rise in the MACD away from the signal line would indicate momentum growth, which would cement the sustainability of the short term bulls. Resistance levels are seen at RM1.67 and RM1.82. On the other end, support is found at RM1.44 and RM1.34.

The comments above do not represent a recommendation to buy or sell.