On the 28th April (Thursday), there was some rumors that private equity firm KKR is in discussion with local abalone farmer Oceanus Group for possible capital injection or acquisition worth $500 million. Both KKR and Oceanus declined to comment. So how do retail investor determine if this rumor is worth believing in without access to insider information*? Can such rumors be trust?
Well, we have the technical chart to assist us to evaluate the probability if a rumor is valid. Volume tells a lot about the activity of a counter. Generally, volume is high when interest in the stock is high. Although insider trading is quite rare in Singapore, I still think that some big players may have access to "news" and capitalize on them quietly. If this is really the case, there should be accumulation on the chart.
On the Oceanus chart, there is no accumulation. In fact, the stock has been in a strong downtrend since last May 2010. Price is below its long term moving average and it seriously lacks strength. Momentum is also decreasing rapidly, tipping the probability towards a continued downtrend. In the event the rumor is true, price may hit strong resistance 0.30 which is a 25% increase over the last trade price 0.24.
Lets take another counter Thomson Medical which has been de-listed after acquisition by Peter Lim. Over here, there is noticeable volume increase before price spike strongly after news is released by the press. Do you still believe that the big boys have no prior access to information? :)
Happy profiting!!!
* Inside trading is illegal...
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