On-Balance Volume

To answer the comment of Mr. Naruno Tony on MyEG's OBV, lets talk a little bit on OBV this time as I have nothing much to update my reading for the Dow and the FBMKLCI. The two options for both the indices remain the same.

On-Balance Volume (OBV) is a momentum indicator developed by Joseph Granville in the 1960s.

He used this indicator to look for accumulation or distribution of stocks by the 'smart money' (institutional investors). He believed that when volume increases sharply without a significant change in the the stock's price, the price will eventually move upward, and vice versa.

My E.G. Services Bhd (Rm 1.17)

For MyEG, the accumulation took 2 years from mid 2010 to mid 2012 followed by an OBV breakout and the stock started to run until GE14 on 9th May 2018. The OBV uptrend from 2012 to 2018 is just a normal trend with no sign of distribution. The uptrend during this period cannot be considered as accumulation, it just moved up in tandem with price. Usually I just let them run but will monitor closely for sign of distribution and use wave count to see where is the stock heading.

Then came the sharp drop with the change of Government on 9th May's GE14. After a 4-day holidays after the election, MyEG dropped limit down from 2.58 to 1.81 (-30%) on Monday and another limit down on Tuesday from 1.81 to 1.27. Finally it reached its low of 0.685 by 1st June.

Before the sharp drop there is no sign of distribution. Assuming the 'smart money' are still holding the stock (most probably they expected BN to win the GE14) and very likely they are the net buyer (have no choice) during the plunge. 

From June to August, the OBV moved with the price up and down, just a normal sign, no accumulation and no distribution. I would prefer to forget about that part of OBV before GE14 and start monitoring the OBV starting 1st June 2018. The 'smart money' will either have to find a way to push the price back to 2.58 or higher or they will distribute slowly by spreading rumours to manipulate the price to salvage whatever they still have.

To illustrate a good indication of accumulation lets look at Dnex.

Dagang Nexchange Bhd (Rm 0.40)

From 2011 to 2016 the 'smart money' is a net buyer for Dnex when it dropped from 0.40 to 0.20 (-50%)

Within 9 months from August 2017 to April 2018, the stock price was pushed from 0.20 to 0.66 (+230%) following an OBV breakout. From May 2017 to April 2018, the stock price dropped from 0.66 to 0.34 (-48%) but the OBV indicates that the 'smart money' are net buyers of Dnex.

When Dnex moved to 0.42 on 26th July, there was a small temporary OBV breakout to mark the end of sub-wave i. If my reading is correct, Dnex is forming its sub-wave ii at this moment. The next surge with high volume and another OBV breakout will signal the starting of sub-wave iii of wave (i) of major wave 3 of mega wave (3). I am not asking you to buy but technically this is what I have for Dnex.

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