Ferrochina Ltd (Ferrochina)

FerroChina Limited is an independent flat steel value-added processor in China. Its subsidiaries are engaged in the production and sale of galvanized steel coils and other related products; production and sale slab billet and other related products, and investment holding.

The share price of Ferrochina suffered a down trend since October last year where the price was hovering around SGD$2.70. The down trend seemed to have stopped when the price found a based at around SGD$1.00 this year, a 63% fall from the price just about 3 months ago. It formed a double bottom pattern on the chart and the double bottom is an up trend reversal pattern. The share price last traded at SGD$1.56, on 2 May 2008.

The underlying trend is still down but the short term trend is up and strong. This may be the crucial factor that may push the price higher and change the underlying trend. The up trend is facing a resistance at SGD$1.66, which is the confirmation of the double bottom chart formation. Once the price breaks the resistance and confirms the double bottom, then we may see a change in the underlying trend.

Based on the daily Relative Strength Index (RSI) indicator, there is a high chance that for the price to go higher than the resistance level. An expansion of the Bollinger Bands recently also shows that there is a strong price momentum upwards. If the double bottom is confirmed, it has an optimistic price target of SGD$2.20.

The price may not be a low risk entry level at the moment because it is at the resistance zone of the current short term up trend. A lower risk entry level is at the support zone on the up trend, which is currently at SGD $1.42. Therefore, it’s better to wait for price to dip to the support zone. There are 2 technical price targets; the short term target being the resistance level of the double bottom formation at SGD$1.66 and a longer term price objective of SGD2.20.


Daily Ferrochina chart as at 2 May 2008 using NextView Advisor

Article By Benny Lee