On Feb 18, I noticed that Wilmar was forming a pennant formation, which is a bulllish continuation pattern. (see this post).
2 days later on 21 Feb, Wilmar announced a seemingly stellar set of results:
But instead of rising, Wilmar tanked! So what happened?
Possible reasons are:
- "sell on news". Wilmar has already advanced a good amount since it's previous quarter's release and the good news is already factored into the current price. Hence it's time to take profits!
- Results might be very good but traders were expecting more. Hence it is actually disappointing. Better take profits and run!
The breakdown of the pennant formation is telling us that it's near term potential isn't great (despite the bullish results announcement). Hence traders who depended on news to trade will often be too late to the party and found themselves caught on the wrong side of the trade, rushing to buy the good news when astute traders were exiting.
Even technical traders may find that a trade does not always work out as expected. But it is ok as long as we follow strict rules to cut a loss quickly.
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