Noble (Short Squeeze)

Today, we saw Noble Group traded up +S$0.15, +48%, closing at S$0.475 with news of company obtaining 4 months extension to their current credit facilities. Please don't be misunderstood that the company has turned around because of a credit extension. Personally, the company is still nowhere near to a turnaround.

Its bonds due in 2022 traded continue to trade near its low of 37/39 US cents on the US, while its credit default swaps continues to imply a high default probability of 94 per cent.
Source: Business Times, 19 Jan 17

Noble Group today experienced what we call Short Squeeze, in Technical Analysis. Eager shorters scumbling to cover back their shorts at all means. They could be human traders, robots or both.

A look on the technicals of Noble Group, we observed that the stock experienced Climatic Selling in mid May, with the stock trading rangebound thereafter. This implies that sellers are weak with inability to force down the share price further.

The credit extension news did not significantly change the comapny's fundementals but it did trigger an avalanche of cover back. The short covering is strong as we can observed from the spread (body) and effort (volume). A break above S$0.50 will see the stock trade towards S$0.70.

Disclaimer applies.

Wyckoff's Law of Effort

Law of Effort Wyckoff's Law of Effort states that on any single trading day (or week depending on time frame), huge volume (effort) push by participants should see huge price movement, resulting in a wide spread (long body). This is a basic principle of effort and result. However, as per Singtel's case study, we saw huge selling volume on 11 May, yet the price action only shows a narrow spread (small body). This divergence of effort and result in Wyckoff's Law of Effort principles, indicates possible exhaustion in selling or hidden buying. Thus, with a lack of weakness, Singtel should continue trading range bound for the coming days or weeks till further strength or weakness is observed. Swing Traders who trades range can consider positions at 3.70-3.72, with exit target 3.76-3.78.

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