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Wednesday, 2 January 2019

TRADE OF THE WEEK #3 - GLOBALTEC FORMATION BERHAD


 
We'll be honest - we didn't really pay attention to the company's fundamentals. But for a penny stock (it has since consolidated its shares), the company not only is somewhat profitable, it also has a snazzy website.

This was a trade idea that originated in about 5 minutes, and culminated in great gains. All within the first hour of the market's opening.


On 26 December, the company's newly issued warrant - GLOBALTEC-WA - caught our attention. Originally priced at 0.5 sen, it opened at 5 sen and immediately sped up to 9.5 sen within 10 minutes. A 90% gain.


We went in after that. Bloody hell! You may say - how can we buy a warrant after it has already doubled in value?


On a side note, we didn't have a predetermined attack plan or whatever. We just saw the price activity in Bursa Malaysia's top gainers. We thought the warrant looked interesting.


Now we'll let you in on a very important secret. Our potential success in this trade boiled down to three very simple questions:


1) Can it stay above 10 sen and for how long?


2) How far can it go beyond 10 sen?


3) Does the warrant look good enough to attract buying interest?


First, we decided to go in because there was sustained buying interest at the 10 sen level. By this we mean that somebody's buying small lots, and at the same time liquidity remained low. This is characterised by typical buy-sell queue at the time:


Buy - 0.105 - 0.12 - Sell

It was that kind of warrant - very intriguing really. Low-ish volumes but it kept going up. Low liquidity but no real collapse. Now for the fun part - disregard the fact that GLOTEC-WA is already trading at 110% its opening value. By 9:15AM.

We were confident that there is still upside, although it definitely would be temporary. We define that window of opportunity as our 'time stop' - this trade has a limit of 3 hours to work. If it doesn't, we exit.

The second parameter : we will buy in at 10 sen and above. Our immediate exit point is at 10 sen. with each half hour, we raise that exit point by 0.5 sen - assuming a sudden decline hasn't already triggered a hasty exit for us.

THE TRADE 

A minute-by minute chart in GLOTEC-WA, 26 December 2018. As you will see, we sold near the peak.
 
So we ended up buying small increments. We entered at 10, 10.5, 12, 12.5, and 13 sen, ultimately ending up with 90,000 shares. It's a fairly risky position, given that the average buy-sell queue was around 15,000 shares at the time.

To simplify, we were risking about RM2,000 in losses for the opportunity to gain RM4,000 in profits. Our average price for the 90-lots position turned out to be 12.5 sen; we were looking to exit at 15 sen per warrant. Anything more would be a bonus, of course.

We acquired that stake between 9:18Am and 9:36AM. Fluctuations were good (think of a normally beating human heart). We took up some warrants at 13 sen and prices fell to 11 sen; it didn't faze us. Though to be honest, we were ready to bolt if it became clear that a collapse was imminent.

What boosted our confidence was pretty simple. During a 10-minute period of downward pressure, there were substantial queues at higher prices. We can't recall the exact amount, but it's something like 1,000 lots each at 12.5 and 13 sen; at this period the warrant was trading at around 11.5 sen. Those sell queues were cleared rather quickly, meaning that the warrant was poised for a breakout.

We remained calm and stayed on standby to sell. The main question at this point was how far the warrant can go.

It went far enough, as it turned out. Low liquidity, coupled with solid buying interest, propelled GLOTEC-WA upwards very quickly. We reached our 15 sen selling threshold, but there was more buying, still.

Prices momentarily remained strong, with heavy volume, at the 16-16.5 sen level by 9:44AM. This gave us enough time to dispose the entire 90,000 warrants position in one shot. 

As you can see from the chart right above, that was the best that it got for GLOTEC-WA on this day.

The key to our success was as follows:

1) We anticipated a rally and assigned sensible loss-stop and time-stop parameters quickly.

2) We timed the exit properly based on our analysis. It was partly intuition, but we sensed that the buying interest will peak at above the 15 sen range. (Editor's Note : warrants traditionally follow the movement of their underlying share. But in this instance, GLOTEC shares didn't really go anywhere. This meant (for us) that the upside is capped).

3) We also knew that because of the finite liquidity, this sort of rally won't be sustained. And yes, we have been in these kinds of situations/trades before; we knew what we were doing.

The outcome of this trade was amazing. Again, we have to mention that this trade lasted all of 26 minutes.




OUTCOME
Gross profit : RM3,600
Average Return on Investment (ROI) : 32%
Duration :Intraday (26 minutes), first hour of trading




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