MPHB: Applying Volume Spread Analysis Method (VSA)

Multi-Purpose Holdings Berhad is engaged in investment holding, provision of share registration and management services. The Company operates in four segments: financial services, which is engaged in the provision of credit and related services and underwriting of all classes of general insurance business; securities broking and dealing, which is engaged in the provision of stockbroking services; property investment and leisure, which is engaged in the ownership of buildings for rental income and hotel operation, and gaming (Magnum). Its other business segments include investment holding, property development and dormant companies.

This simple experiment was based on a reading from the book Master The Markets by Tom Williams (I believed he is 77 now) written back in 2005 and you couldn't find it in a bookstore nor in Amazon (http://www.goodreads.com/book/show/8238770-master-the-markets). A thing to note before we go into technical. Market professionals are traders involved in the market purely for the purpose of making a profit. They will first plan and launch a campaign to acquire a particular stock. So now I'll begin explaining the diagram above:

VSA Buying Climax - signs of weakness
The ultra high volume plays a key role. It means that market pros are selling to unsuspected retail investors like us because most of the individuals traders whose judgment will be clouded by all the great news floating around them. All these traders rush into the market buying it while the pros are offloading them hence the ultra high volume. Once this transfer has taken place a bear market is guaranteed.

VSA Up-Thrust - signs of weakness
Indicated by a wide spread during the day but falls to close on the low, on high volume. This is the logic, if the high volume seen was buying, then the closing price would have been on the high and not on the low. Hence the close on low suggests there is more selling than buying in the high volume within the marketplace. We get a bear run again.

VSA Shakeout - signs of strength
This is intended to remove many investors and traders from the market, obviously all those un-pros. News will be bad and this is used by the pros to panic people out of their positions. Usually after a shakeout the market will move sideways with low volume because the pros would try to buy as much of the stock as they can, without significantly putting the price up against their own buying. This stage is called the accumulation phase; some last for a few days, I have seen some for weeks.

VSA Testing - signs of strength
Prices are marked down rapidly during the day but the price would recover to close near the high of the day with low volume. This signals that the market has been marked down and has attracted no professional selling due to the low volume. Remember that the pros hold the volume, so when they do not sell, the market has little choice but to go up as it is driven by the usual supply and demand.

Having said that Aboi's recommendation is (remember this is an EXPERIMENT on a new method before I decide to adopt it). *Target price is based on average target price set by Research houses (btw I have lots of faith towards Kenanga's research). (http://klse.i3investor.com/servlets/ptg/3859.jsp)

Target price: RM4.18 TRADING BUY
Fundamentals: Short Term OutPerform (1-year period)
Technical/VSA: Short Term Bullish (3-month period)
Risk Level: High

Disclaimer: The reports, analysis and recommendations in this article are solely my personal views. I do not link to any investment body or company. As such, I will not be responsible of any of your investment decision. Consult your investment adviser or come to your own conclusions before making any investment decision.