• After the tumbling of EG share price by 31.7% from RM1.26 on 12 Jan 2016 to a recent low of RM0.86, the stock is now extremely oversold, substantiated by oscillators (hourly and daily MACD, RSI and Slow Stochastics). Moreover, RM0.87 level is deemed as a strong technical support area.
• Reversal signal for a rebound has also emerged. Share price rebounded decisively in the following days after forming a Piercing Line candlestick pattern. Yes terday’s clos ing price further confirmed the reversal pattern. In addition, buying momentum in the stock is picking up pace at an accelerating velocity given its Positive Divergence pattern as well as bottoming-out MACD, RSI and Slow Stochastics, shown in hourly and daily chart above respectively.
• With strong buying interests in the stock, we are of the view that share price is expected to stage a strong technical rebound. Hence, we are targeting RM0.995 (50-d SMA) , RM1.08 and RM1.26 (high on 12 Jan 2016). However, always prepared to set cut loss if situation changes. Support at RM0.91, RM0.89 with cut loss below RM0.87.

• Attractive risk to reward ratio with 36% upside against 5.9% downside. All in, we see an attractive risk to reward ratio for investor with a theoretical entry price of RM0.925 given that the downside to the cut loss zone of RM0.87 is 5.5 sen (-5.9%) while the upside to the LT price objective of RM1.26 is 33.5 sen (+36%).

Source: Hong Leong Investment Bank Research - 4 Feb 2016