XOX -“Saucer” Formation (OSK)

XOX’s share price has performed dismally since its listing in June 2010, shedding 75% of its IPO price in just three months after going public. The stock continued to make new lows throughout the period until it bottomed in late Sept 2011. However, this momentum eased as its decline progressed and was accompanied by a contraction in volatility. This implies that a change in trend could be in the offing.

In fact, since hitting the bottom last year, the stock has been inching upwards and making higher lows. Viewed together with the earlier easing of selling momentum, the stock is making a “Saucer” formation, which usually leads to higher prices.

The 50-day MAV line also supports this positive picture, with the share price now above this gradually rising line. A spike in volume in the past few months also suggests accumulation. But the upward bias will only be confirmed if it closes above the RM0.30 psychological level consecutively. This will see it trading at the highest level in five months.

Note that the stock closed above this psychological level for one day in early Nov 2011. A position can be initiated if this happens. A more aggressive trade may be to enter now, or if possible, on a pullback towards the stop-loss level in anticipation of a successful breakout. The close below the recent low of RM0.245 can be employed as a stop. The price target is the Fibonacci level of the Jun-Sep 2011 fall, at RM0.435, also the high in late June 2011, and the psychological RM0.50, provided that the stock manages to breach the August-high resistance at RM0.375.

A trade will not work if the stop loss is triggered, while a close below the Dec 2011-low of RM0.23 will likely confirm the failure of the positive “Saucer” formation. In this case, expect the stock to trade sideways, or worse, intense selling could drag it below the Sept 2011-low of RM0.20.