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Author: MQTrader Jesse   |   Latest post: Wed, 25 Jul 2018, 11:30 AM

 

MQ Trader - How to validate buy signals by using MQ Live Backtesting? [ECOWLD]

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ECOWLD (8206)

Eco World Development Group Bhd is a Malaysian property development company. The company has development projects including new townships, integrated commercial developments, luxury high-rise apartments, and green business parks.

Fundamental Analysis

Figure 1: Annual revenue of ECOWLD

Figure 2: Annual profit of ECOWLD

Figure 3: NAPS of ECOWLD

Figure 4: PE ratio of ECOWLD

The figure above shows that there is a remarkable improvement in ECOWLD’s financial, as ECOWLD has turned loss to profit with tremendous growth since year 2015. Its revenue is also moving in the same direction indicating that ECOWLD can convert sales into profit constantly every year. Besides, the NAPS of ECOWLD is increasing constantly over the years showing that the value of its share is appreciating in the long term. ECOWLD is also currently undervalued, as its PE ratio is 12.13 and it is decreasing over the past few years since year 2014.

Fundamental Rating

Based on MQ Trader’s criteria, stocks with MQ Fundamental Rating more than 2.5/5.0 are considered as stocks with good fundamentals. ECOWLD scores 2.9/5.0 for its fundamental rating, as it passes half of the fundamental tests, so it is classified as fundamentally okay company. It can be put into our watch list for long term investment.

3-years Technical Chart

By comparing the SMA 200 (long term trend) and EMA 50 (mid term trend) with the current trend of the share price, this stock is still undergoing long term downtrend. This is because three of these trends are moving downwards where the current trend is located below EMA 50 and SMA 200.

Technical Analysis

MQ Technical Rating

Figure 5: Technical rating captured on 21 Oct 2019

There is no bullish signal detected on ECOWLD’s technical chart at the moment, as its MQ Technical Rating is lower than 3.0/5.0 which is the benchmark set by MQ Trader to be considered as a bullish stock.

Figure 6: Technical chart captured on 21 Oct 2019

There are only a few MQ Trader trading strategies that capture buy signal recently. One of the examples which is EMA 5 Crossover on daily technical chart is as shown in the figure above.

To confirm the signal quality, MQ Backtesting is used to determine the success rate of the signal.

Based on the MQ Backtesting result, all the latest buy signals released on 17 October 2019 are validated to have poor rating. In short, the probability of sharp increase of share price to happen within 10 trading days is anticipated to be quite low.

To determine whether the share price moves according to our prediction, ECOWLD’s share price is observed on T+10 (1 Nov 2019).

Figure 7: ECOWLD’s daily technical chart captured on 1 Nov 2019

A sell signal appeared on 28 Oct 2019 indicating that there is no sign of rebound signal within these 10 trading days. MQ Backtesting results have verified the strength of buy signal to help traders to distinguish false signals easily.

MQ Trader’s View

Budget 2020 has stirred the property sector with some positive policy updates, allowing the property developer to clear their stock, including ECOWORLD.

1. Lowering the threshold for condominiums and apartments in urban areas from RM1 Million to RM600k by 2020 for foreign ownership.

2. The government will provide a guarantee of up to RM3bil for the RM10bil in financing for first home purchase for up to RM500k through rent-to-own (RTO) scheme.

3. Youth Housing Scheme by Bank Simpanan Nasional (BSN) will be extended until 31 Dec 2021.

Based on above, Budget 2020 does help property developer to clear their existing inventories, but it does not work as incentive to create strong buy momentum in residential segment.

Conclusion

In our opinion we maintain NEUTRAL on property sector as we do not anticipate earnings surprise in short term. Hence, we will save our capital for better opportunities instead of buying or holding the share that are in sideways movement. At the same time, we will put ECOWLD in the watch list for grabbing the opportunity when there is any news that can impact the share price positively.

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Disclaimer

This article does not represent a BUY or SELL recommendation on the stock covered. Traders and Investors are encouraged to do their own analysis on stocks instead of blindly following any Trading calls raised by various parties in the Internet. We may or may not hold position in the stock covered, or initiate new position in the stock within the next 7 days.

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