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Hengyuan Refining Company Bhd (Code: 4324) is looking very bullish after gapping up in yesterday’s trade to end the week much stronger than when it started.

The rally gained in momentum from Monday’s sharp rise, which put the stock firmly above the key simple moving averages (SMA) and established a steep short-term ascending trend.

A breach of the uppermost 200-day SMA was seen as a strong bullish signal as the moving average had been intact since June. In addition, the short-term 14- and 21-day SMAs are crossing above the long-term SMAs to reflect the growing momentum on the daily price chart.

While the unwinding of the stock’s dominant long-term negative trend – established over three years of declines – remains over a distant horizon, the current rally puts the counter in good position to recover the losses it made between May and October this year.

Following such a strong rally, there is a likelihood of profit-taking at this point as the stock approaches the immediate resistance of RM4.04, while the 14-day relative strength index is flashing an overbought warning.

However, given the strong momentum of the technical indicators, coupled with a surge in trading volume, any halt in the rally is expected to be temporary.

The slow-stochastic has given a “buy” signal as the percent K oscillator crossed above the percent D oscillator, reflecting the onset of bullish sentiment.

Meanwhile, the daily moving average convergence/divergence line has pacing higher away from the signal line, also suggesting growing positive momentum.

Short of a reversal in the technical indicators to a negative trajectory, the signals remain healthy for a continued uptrend.

Should the share price breach RM4.04 in coming sessions, the next resistance is seen at RM4.30.

Support for the stock is found at RM3.38 and RM3.10.

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


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