Friday, July 27, 2012

Stable Growth Intact - Biosensors

I quite enjoyed reading the BUY rating on Biosensors by the OCBC research team and concur with the author on the following key points
  • Strong revenue growth
  • Maintained operating income
  • Operating cashflow has improved (US$36.3m inflow)
  • Attractive valuations given the recent fall in stock price
Here are also some additional points to add to the investment thesis,
  • Been meeting analyst expectations as a very solid company.
  • Operating cashflow has been on a steady rise over the last 4 quarters.
  • Cash pile has increased steadily over the last 4 quarters.
  • Medical sector will continue to improve in SEA/Asia region given the improving incomes especially form neighbouring countries that are fast developing and attracting investments.

Outlook However, on a pure technical front, I have some reservations. As such, I believe Biosensors deserves a Watch outlook with a possible break in downtrend possible. Lately, its stock prices have suffered with the broader market movements since the year-start rally. Perhaps overdone compared to its counterpart (but not quite similar) Raffles Medical Group, the downtrend has yet to be conquered completely. Will be more tempted to buy when prices can sufficiently cross $1.265 resistance and the 20w MA.
  • MACD (daily) - MACD crossed under its signal line yesterday only to be rescued by a post-close earnings report that allowed the stock to regain some ground in positive momentum.
  • MACD (weekly) - Has shown a strong divergence improvement with the MACD turning up and crossing its signal line in the next week. 
  • RSI (25d/w) - Both daily and weekly RSI are challenging the 50% level soon.
  • Bollinger Bands - Bollinger bands are widen and can accommodate for big price movements in the time periods to come.
  • 20d MA - Prices have crossed the 20d MA with a gap up today (26 June).
  • 20w MA - Prices are steadily headed towards the 20w and 50w MA for the last 5 weeks.
  • Volume - High volume today (26 June) with a gap up in light of earnings report.

Tuesday, July 24, 2012

Bad Day for Commodities (Again) - Olam

The STI gap-ed down today to no surprise given the resistance it has met once again with the 3000 level and simmering investors' appetite since the rally began 2 months ago. Again, commodities and shipping counters were especially battered today in light of their poor fortunes with China slowing down and the overall trade malaise.

Olam is a global agri-commodity brand that has strong roots in the African region. Temasek has a strong investment presence in this company as one of their strategic plays on the commodities business. It has however been battered and wrung dry lately in light of the global commodities sell-down. Its price recovered slightly given some injection of market confidence through an aggressive share buyback and show of confidence in the business by the upper management in buying up shares.

Outlook Go on short. Even with an aggressive share buyback programme and show of strength with its management buying up shares as well, the market has clearly not bought the story that there is still upside and maintained profitability at least in the remaining half of the year. Huge black candlestick today with high volume. Sell.
  • MACD - Has crossed the signal line and trended downwards with accelerating momentum. MACD is in negative territory too.
  • RSI (25d) - Dipped below 50% and headed for the 30% level.
  • Bollinger Bands - Bollinger bands are widening again especially along the lower band signalling even further accommodation for volatility on the downwards side. Highly likely that prices ride the lower band down further.
  • 20d MA - Prices have crossed the 20d MA strongly, further fueling the downside selling pressure. 20d MA is also slopping downwards.
  • Volume - Black candlestick with unusually high volume. Very bearish.

Monday, July 23, 2012

Weakness Lingers - Sakari, CapMallsAsia

Sakari Resources is a coal mining company based in Singapore with 2 mine operations in Indonesia. Since July last year, its stock price has been on a heavy downwards trend due to market weakness coupled with China's slowdown that has caused an even greater drop in prices lately. The raw materials FTSE index has been the worst performer YTD compared to other sub-indices and the STI index. 

Outlook Go on short, break below 1.16 possible. Sakari prices broke through a major resistance diagonal drawn from June 2012 recently. It also just crossed the 20d MA line and headed for further downside. Stars are aligning for this stock to go further down together with even more market instability in the week ahead. Note that Sakari reports their earnings on 27 July Friday so perhaps the market is signalling/betting on poor results given the bad 2nd Quarter showing from China. Sell. 
  • MACD - Has crossed the signal line and trended downwards with accelerating momentum.
  • RSI (25d) - Is also steadily trending upwards towards 30% danger level.
  • Bollinger Bands - Bollinger bands are widening again especially along the lower band signalling even further accommodation for volatility on the downwards side. Highly likely that prices ride the lower band down further.
  • 20d MA - Prices have crossed the 20d MA strongly, further fueling the downside selling pressure. 
  • Volume - The day price crossed the 20d MA, volume was particularly strong. 18 and 20 July had particularly strong volumes accompanying large black candlesticks = even more strong selling from the market.

CapitaMalls Asia had a fabulous run of late, increasing almost 18% from its May lows to close at ~$1.63 levels as with previous highs in Feb and Mar. Pretty impressive counter that has a solid balance sheet of increasing assets/long term investments over the last 4 years. High stockpile of cash that was recently (in 2011) used to acquire more investments which is pretty shrewd given the low valuations during that period. Stockpile of cash still remains pretty high at $930m as of 31 Mar 2011. Earnings, though, have been hit recently due to the sluggishly economy that has finally found its way eating a still solid track record of equity investments. Expect more decrease to come in this bulk contributing segment that is also pulled down by lowered operating income (though almost negligble compared to equities investment income).

Outlook Sell. Stock has overrun its fundamentals and although it did a good job in the recent rally, its still-sluggish earnings will become apparent as it becomes more expensive. 
  • MACD - Crossed signal line 3 trading days back and is headed downwards in accelerating fashion. Note though that MACD is still in the positive region so in a sense there is still some upward momentum that's lingering but fast disappearing.
  • RSI (25d) - Is heading down to challenge the 50% level.
  • Bollinger Bands - are closing up and prices are seen heading for the lower band
  • 20d MA - a large black candlestick appeared last Friday (20 July) that crossed the 20d MA signalling further downside.
  • 200d MA - Prices are around 15% above the 200d MA.
  • Volume - Volume trade have generally increased at its peak price of ~$1.6-1.65 over the last 2 trading weeks. Possible sign of lacking impulse to continue further with many traders placing short bets or closing out of positions this time. 

Wednesday, July 18, 2012

Time to Scale Back on Uncertainty - STI

Alright, there was a visible lack of articles during the last week or so on this blog. The reason is simple - the STI looks to be headed to another 3000 level resistance and the uptrend is dwindling. Instead of getting caught with the already-pretty-old rally, I have been busy winding down on the remaining opened positions that I have been monitoring (You can find the list at the "Historical Stock Calls" section). I must qualify here that I am just lowering exposure in an uncertain market and not taking an opposite view to this rally scenario.

I must be brutally honest here though, that I have little confidence of predicting the next move that the STI is going to make. These are the 3 scenarios that I am considering

  • STI to convincingly break 3000 on news of a combined China stimulus + US Fed QE3 packages.
  • STI to hold at this level persistently (like between Feb to May) for a few months
  • STI to breakdown again
On both technical and fundamental analysis fronts, I am quietly confident of the STI holding at this level for a considerable period of time, say 2-3 weeks, which is the 2nd option of my list of possible scenarios.

  1. the STI/Singapore stock exchange is undoubtedly one of the strongest performing market in the region and has remarkedly appreciated in the last 2 months and even retested the 3000 level set in Feb early this year whereas the HSI has failed to reach its similar highs.
  2. Bad news have been sweeping in since start of 2nd half of the year with China and US tanking. So, the outlook is not as rosy as it was in the first half of the year but hey, why are stock markets still rallying? Simply because of the optimism that governments are going to act soon and see results in the next 6 months (money to flow into the system). So more bad news? No worries. 
  3. Europe? Spain is out in the open for scrutiny while Greece fixes themselves. Italy and Ireland have been doing comfortably well in their own ability. It has already come to a point that the European leaders for once know how badly people are looking at their mess and how they ought to band together, probably, for the one and only time, to get everybody out. 
  4. It's an IPO season isn't it? Companies are now rushing out their IPOs to catch on this improved investor sentiment to lure the mass retail and institutional market investors back into equities. That speaks a lot about how companies are trying to expand in this condition and their long term view of the market conditions.

Technically, the STI has done a fabulous job over the last 5-6 weeks. It is most technically sound to suggest that the STI will reach a consolidating position by referring to the periods highlighted by the 2 green bubbles. When the 20d MA does cross the 100d (the 20d MA already crossed the other 50/200d MAs) finally in April 2011, it began to consolidate at its 3100 level. MACD was looking to cross down under as is with the set up in this period. Similarly, RSI has seemed to be unable to break the levels and a M occured. 

  • MACD - Positive momentum is on the wane. Possibly peaking out in the next 2-3 days before a cross under of its signal line.
  • RSI (25d) - Retested 65% level but unable to break through. At article-published-time, the RSI has reduced below 65% again.
  • 20d MA - the 20d MA is above 50/100/200d MA lines.
  • Major Resistance - 3000 level still seems like a very strong psychological level.
  • Volume - A surge in volume occurred yesterday (17/7) which saw the STI consolidate its position at 3020. 

Saturday, July 7, 2012

The STI Stock Rally Still Has Some Legs Left?

The rally started some 5 weeks ago when sentiments were terrible but it was not totally unexpected. I made several correct buy calls in the lead up and during this rally as you may find in the "Historical Stock Calls" section of my blog. 

There was a strong technical setting that gave evidence to this pent up negative sentiment that will eventually swing the pendulum in the other way; temporarily or not, we still do not know. If you look at the weekly STI chart below, it was clear that the STI was due for a rebound 5 weeks ago when the first white candlestick appeared below the lower bollinger band. In an elastic rubber band case, it is in a way of overstretching it too far, with the first signs of it winning the war and tighten. 1 week later, MACD histogram registered its first green bar together with a white candlestick that ended higher, which marked a more complete 2 signal confirmation that there is a much higher possibility of a rally.

Now the question has to be if this rally still has legs to run? Well, to me, it is a yes.

1. On a technical and momentum driven set up, parallels can be drawn with the year-start rally.
  1. Similar 2 white candlestick cross of the 20w MA line
  2. Rebound off a low 2-3 weeks ago
  3. MACD crossing signal line
  4. RSI heading across 50%
And if I were to project the same momentum driven gains from the previous rally, one will expect the STI to have some fuel left to run another 5% at best. Nonetheless, there are 2 key obstacles in the way - the 100w MA line which has proven to be a very strong resistance point for the STI in the year-start rally when it only went at best 1% above it. The second is a upper bollinger band which is around 4% from current index points. I would discount everything and put a figure of around 3-4% TP point when this rally finally sizzles out (news hasn't been good lately still and the market has been kind of ignoring these, biased with momentum). 

2. Based on my earlier article on the correlation between Dow performance and the US earnings season, there is good empirical evidence to believe that the next 2-3 weeks will provide good further yields to the current positions. (That is of course assuming that Dow and STI are correlated as well) Alcoa will kick off the traditional earnings reporting season on 9 July Monday and going by statistics, we may well be in another good mood for the next 2-3 weeks.

I like the set-up here on a technical and mathematical basis and I will still be keeping my eggs in and slowly easing out in the next 2-3 weeks. Healthy trading.

Thursday, July 5, 2012

Know Your Investment Appetite: A Lesson on Stock Beta

A good investor/trader knows his personality inside out. He also knows his targeted returns and the risks that he is willing to take in order to achieve them. That means doing a lot of homework even better sinking money into an random stock that may look good on pure 'technical analysis'.

One big homework question to ask ourselves, apart from the most rudimentary risk/reward policy but similar, is the expected Beta correlation between the stock daily returns and that of the STI. Remember that buying into a stock entails accepting its market and idiosyncratic risk

Idiosyncratic Risk. This risk lies solely on the actions of the company and its operating risks. In other words, there is nothing to do with market sentiments, just stock-based sentiments. To understand this in another light, consider a downbeat market where a stock can still be increasing in price because it just launched a new product. There is an Alpha measure for this risk, as the % improvement in prices whenever something happens could much more than another company's. That is the inherent idiosyncratic risk or volatility we have to stomach. 

Market Risk. The former is the one in discussion today, measured by the stock's Beta value. In a market rally, we expect stocks to be buoyed in prices because market sentiments are improving. That means, we are seeking to profit the most out of this market rally and therefore seeking to harness stocks with high Beta values. That will give our money the highest possible 'virtual leverage'.

Below is a chart provided by SGX MyGateway entailing all the Beta values for the STI component stocks and their YTD total returns. Take note that the prices are correct only until 21st May from year start.

Source: SGX MyGateway

In short, ceteris paribas (assuming all idiosyncratic risks are equal; when in fact they are definitely not, so some stocks with high beta may have a lower total risk/volatility than another that may have a very high idiosyncratic risk)
  1. In a market rally, trade highest Beta
  2. In a downbeat market, trade the lowest Beta (defensive stocks)
  3. For portfolio asset allocation, mix stocks with generally high beta (to outbeat the market) while averaging out their Alpha (idiosyncratic risks)

For the interested, I have included some details on how you can also calculate these Alpha and Beta values yourself using MS Excel, Yahoo Finance (for data)
  1. Download stock data as required (daily/weekly/monthly and time period according to your analysis needs) from Yahoo Finance Quotes.
  2. Download STI data as required (daily/weekly/monthly and time period according to your analysis needs) from Yahoo Finance Quotes.
  3. Tally both closing prices side by side. Remember, we are trying to compare the % returns for the stock in question and the STI across each trading day so the data must match.
  4. Weed out days that do not tally. Yahoo Finance usually has data that are missing so there may be a need to match the trading days manually. In this light, it is inadvisable to be dealing with daily prices over a huge range. Even if there is that need, pay attention that a stock beta and alpha may vary over time periods and market psychology so my advice is to keep it to last 2-3 years maximum.
  5. Calculate returns in % (in this case, for illustration, I have calculated and compared daily returns)                                                         
  6. Insert scatter plot for both data, with the row for STI % returns on the x-axis (considered, in linear regression analysis, as the independent variable since we are seeking to find out how Capitaland moves relative to the STI) and stock in question % returns on the y-axis.
  7. Right click any data point on the scatter plot and select add trendline. Check the boxes (lower portion of the new window that opens) to include the equation and regression coefficient. 
  8. Ta-da! The graph as it is ready for interpretation.                                                                                                                                               ..
  9. For the illustration above, Beta = 1.446, Alpha = 0.004. This means that (over the period of analysis) when the STI moves 1%, Capitaland will move 1.44%, outperforming the market in good times. This should come as no surprise given the weightage of Capitaland in the STI. Let's not forget the inverse is true too! A downbeat market will see Capitaland retreat by 1.44x STI's amount. In this case, the alpha is pretty low but it does not suggest an absence of idiosyncratic risk (this topic is getting more technical) but an absence of it RELATIVE to the STI. To understand this, you must first appreciate the circular argument logic that encompasses this analysis with Capitaland. As it is a big component of the STI, its idiosyncratic risk has also found its way into the STI portion so there is little meaning in finding out that risk value while comparing Capitaland with the STI. A better approach would be to compare Capitaland with Keppeland in order to find out the relative idiosyncratic values and the argument continues here. 
  10. A quick check with the recent rally that started on the 4 June for the STI, Capitaland's prices increased 18.7% (4 June at $2.46 til today 4pm, price of $2.88) whereas the STI saw a 7.1% increase in points (4 June at 2700 til today 4pm, of 2962), clearly validating the high market beta that Capitaland enjoys.
  11. Rsquared measures the fit of the straight line to the data set where a value close to 1 indicates a very good straight line relationship fit and hence more confidence to work with the straight line equation as an approximation to the data. In this case, the Rsquared value of 0.64 gives some confidence that the straight line equation can solve our risk analysis problem. 

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Wednesday, July 4, 2012

STI Index vs Performance of Stock Calls

The STI has risen some 6.9% (2960 on 4 July from 2770 on 25 May). To put it into perspective, by purely punting into an STI ETF on 25 May, one would theoretically have a $69 gain for every $1000 invested. In another light, an annualised 8-9% yield is probably the higher end of what fund managers aim to achieve before calling it a day for the year. In reality, this 2-3 weeks bull run, if you had predicted correctly and invested fully at the start, will have almost gotten you done for the whole year's investment's worth.

Nonetheless, we learned to ease into opening positions and not plonk everything totally in so realistically the yield that we expect to get together with our emotional market timing would be slightly lesser, probably 5-6% on the optimistic side. And in this light, I am pretty satisfied with the performance of stock calls that I have made in this period.

A quick check on my stock calls over this period, excluding those made earlier today, shows 
  • a geometric (equally weighted) averaged return of 4.8%
  • highest return was a buy call on NOL on 4 June that has a current (4 June 4:40pm latest price) unrealised gain of 10.10%
  • Capitaland and Ho Bee where both have a realised and unrealised gain of 8.8% respectively
  • the most underperforming decision was Kreuz at -3.39%
  • winners to losers percentage is 80% (8:2).

On hindsight, satisfied I may be on the risk-reward structure and the guiding trading principles that I have been recursively employing, I still realise that the mathematics show that I have yet to beat the STI benchmark. Which struck a chord with me on the adage "You cannot beat the market" with the efficient market hypothesis. Some truth to it, but I still have firm belief that the efficient market hypothesis is not entirely applicable especially in the Singapore market where liquidity is still an issue across the lesser-known stocks while information flow is not anywhere near the coverage of US stocks. So, I still believe that there can be more to be done in my pre-call mathematical analysis such as a stock's historic beta to the STI that I have yet to properly employ in my articles. I look forward to employing that knowledge to complement my trading principles.

Nonetheless, this is clearly a good start and a healthy validation of my trading principles in making any technical or fundamental analysis recommendations on my blog. 

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The Stock Market Rally As Predicted - Midas, Mewah, Swiber

If you had been following my blog for the last 4 weeks, it is of no coincidence that the current market rally was about to unfold. 
On a technical analysis basis, weekly MACD of most stocks was slowing down in the negative direction, started to turn upwards and cross its signal line. The first positive call on the most iconic Capitaland came on 28 May that netted a return of 8.8% (check out that blog article here). That marked the start of the property bull when most of the property counters caught up with the Juggernaut's (Capland) rally in the next 2-3 weeks (check out blog article on the property bull run here). Finally, when big cap stocks like Kep Corp, F&N, Semb Corp, Semb Marine start to move, as they have done in the last 3-5 trading days, it is perhaps time to really declare this a bull run

However euphoric you may be reading this now, let's keep our excitement in bay because of the lessons learnt in the start of the year - when things become too overly optimistic. Is that the case now though? I do not think so as it is really quite a start of the rally. Yet, it is worth to pay attention to the divergence in prices of the large cap stocks as they are usually the ones that begin to signal the end of the run. Since Capitaland started this rally early, it is also probably the best indicator that we can use to gauge on the end of this run. For now, remember that entering now is probably 2-3 weeks late (from the really good traders) but do still enjoy the run. Reach your targets and enjoy for the year - healthy trading

Mewah is probably the only palm oil counter that has yet to go on an immense bull run that we have been engulfing the prices of Bumitama Agri, Golden Agri and Indo Agri. At the end of 2011, it had a price of ~$1, falling immensely to $0.37. Will it be able to see the 20-30% recovery in its prices as we have seen in that of its fellow palm oil counters (Indo Agri has risen a whopping 30% from its local low in May)? Right now prices of Mewah has already risen 15% from its local low in June.

Outlook Buy; laggard play. Technical indicators are aligning to put this stock on a upward trajectory. Volumes are recovering, most notably today where a spike in buying pressure clearly appearing. Having performed less admirably compared to its fellow palm oil counters such as Bumitama Agri, Golden Agri  and Indo Agri, there is no reason not to expect this once-hot-counter to embark on a similar trajectory when traders start to feel the others have long overran their fundamentals.
  • MACD - Is trending upwards for last 4 weeks for daily chart. Daily MACD just crossed 0 and headed strongly higher. Weekly MACD just crossed its signal line.
  • RSI (25d) - Just crossed the 50% level.
  • Bollinger Bands - Prices are riding along the upper bollinger band now with the bands clearly widening to accomodate for even more price volatility and possible uptrend.
  • 20d MA - the 20d MA has just started to turn up, another positive sign that the average momentum has indeed left pessimism trailing. 
  • 200d MA - Prices are still a good 8% away from the 200d MA as compared to most palm oil stocks that have prices already crossed the 200d MA. Undervalued much.
  • Major white candlestick - and 2 smaller white ones for the last 3 trading days signify a much stronger rebound.
  • Volume - A surge in volume occured today (3 July) accompanying the major white candlestick.

Midas announced a RM860 million metro contract today (3 July) that was very well received by the market together with market optimism that pushed its shares a whopping 5% higher. There has been increased optimism too that it will be able to secure more rail contracts closer to 2013 onwards given the recovering China rail industry after the recent rail incident.

Outlook Buy; cheap play. Stocks dealing with basic materials have been a good recovery in the last 2 weeks with Sakari Resources already increasing a whopping 25%. In the US, aluminium and metal counters have similarly enjoyed a good run. 
  • MACD - Is trending upwards for last 4 weeks for daily chart. Mild increase until today when MACD seems to be increasing more firmly and urgently.
  • RSI (25d) - Just reached the 50% level.
  • Bollinger Bands - Prices have burst the upper bollinger band now with the bands soon-to widen to accomodate for even more price volatility and possible uptrend. Nonetheless do note that there could be an anticipated take profit on 4 June (tomorrow) given the huge break from the upper bollinger line. 
  • 20d MA - the 20d MA has just started to turn up, another positive sign that the average momentum has indeed left pessimism trailing. 
  • 200d MA - Prices are still a good 12.9% away from the 200d MA. Potential for upside is high.
  • Major white candlestick - accompanied another yesterday (2 June).
  • Volume - A huge surge in volume occured today (3 July) accompanying the major white candlestick. Investor appetite for this stock is clearly increasing and has increased much over the last 1-2 weeks steadily.

Swiber was arguably the most battered down stock after the first-half-of-the-year rally. It recovered mildly after securing a host of contracts that extended its order book towards $1.5billion over the next 5 years. An impressive record for this company but the market has yet to firmly price its potential and brand in the oil & gas sector. Today its price finally broke $0.60 which was a local high in end June after euphoria on its slew of contracts. With more investor buying pressure, it seems that its fundamentals will soon be correctly validated.

Outlook Buy. Still a 17% away from its year-start rally high (Ezion holdings is almost at its year-start rally price high for comparison) presents a good upside potential for this stock. In this sustained bull run, it is always a great idea to be vested in oil & gas counters. This is cheap, in a great sector, has strong fundamentals. All in for a good buy.
  • MACD - had a blip over the last 2 weeks but is well supported on the 0 in the positive territory and is trended upwards. Weekly MACD has just crossed its signal line for more bullish break.
  • RSI (25d) - Just reached cleared the 50% level.
  • Bollinger Bands - Prices are touching the upper bollinger band now with the bands seemingly narrowing due to lagging calculations where the volatility of the last 14 days was pretty low. Not a great buy sign but given today's break in prices above $0.60 (around 5% increase from the 14d average), there is no reason not to believe additional volatility is back. 
  • 20d MA - the 20d MA has been trended upwards with no signs of decrease. Strong upside.
  • 200d MA - Prices have just crossed the 200d MA putting it in the likes of similar oil & gas counters of a bull rally time. Let's not forget that the other counters have prices already much above the 200d MA. 
  • Diagonal major support - Prices are well supported on the diagonal as show in the chart. Risk reward is very healthy at current prices.
  • Major white candlestick - accompanied 2 other in the last 3 trading days. Very positive uptrend.
  • Volume - Steadily increasing volume has accompanied the last 3 trading days signifying much renewed buying pressure for this counter.

Monday, July 2, 2012

More Green for STI In Week Ahead?

News have been less seldom so rosy lately especially over weekends when more depressing Europe revelations come about. But this weekend has been really quite a turn around isn't it?
  • Ending-week Friday rally to close a really roller-coaster-like ride since year start with most, if not all, indices up YTD.
  • Europe is finally showing some urgency and collective will to do something about their mess. 
  • Chicago PMI up to 52.9 from 52.7 outperforming estimates of 52.5. Data was released on 29 June Friday.
  • China June PMI data, released on 1 July Sunday, stands at an official 50.2, higher than an estimated 49.8, though lower than 50.4 in May. 
  • South Korean trade surplus surprised all analysts coming in at $4.96billion for June, the highest surplus since 21 months ago.
  • Crude oil prices are up a whopping 9.2% on Friday, rallying back to $84.84 on the NY Mercantile Exchange.

Outlook - Accumulate. All technical indicators are pointing further upside in the coming week(s). After 1 week of slugfest between the bears and the bulls, it is clear who won this week around. However, before getting too euphoric, pay attention to one key resistance that still lies with the 2920 level. It is provided by a major resistance line and validated by the 100d MA line. Expect some rocky days as the STI challenges that level. Once cleared, it could spell another buying spree that we had seen in year start.
  • MACD - Trending upwards and crossed 0. Increasing upward momentum is still building up.
  • RSI (25d) - Just crossed the 50% level giving more validation of the strength of this run and the potential for more upside.
  • 20d MA - the 20d MA is heading upwards.
  • 55d MA - the 55d MA was a short-lived resistance where prices retreated in 18-19 June coming close to that level. Broke it on Friday's close. Possible turn of role into a support line.
  • Volume - trending up in the last 3 trading days signifying very good buyer (prices are increasing so buyers>sellers) sentiments and participation.

Sunday, July 1, 2012

Time to be Bullish on Property Counters?

It is of no coincidence that the Straits Times rightly mentioned about 'Property Stocks Outperform(ing)' in the Saturday's (29 June) papers; this is something that I had been highlighting since end May and even more strongly in the last 2 weeks. 

Again, acutely pointed by the article is that the FTSE property index is up 20% YTD. I have also plotted all key indices in a plot below that clearly illustrates the outperformance of the property stocks index as well as highlight some other outstanding and (possibly) undervalued sectors. 

If we go deeper into the reasons for this strong showing by the property sector, it is also not difficult to derive its strong fundamentals and technicals (supply and demand).
  1. If you buy the fact that the STI is rebounding pretty strongly, with large cap counters beginning to re-challenge its first half of the year highs, there is a strong premise to do so with the property counters as traditionally, they are the leaders of any bull rally/rebound/correction. 
  2. Past week of property news have focused on the resilient residential prices, rebounding commercial and industrial rental yields. To put it simply, despite all the cooling measures, demand for property is still very very high from the spare liquidity in the hands of Singaporeans. Some may argue that the commercial sector still faces a tough time ahead while prime residential is still reeling from the recent stamp duty imposed on foreign buyers, they are really just smaller issues in the bigger sphere of this property sector. Here are some of the published articles between 25 June to 30 June on the property market 
    1. (iOCBC Research) SG Residential Sector: Upgrade to Overweight - Mass-market prices to stay buoyant
    2. (ST) Bigger homes making a comeback after shoebox craze
    3. (ST) Healthy demand for good class bungalows here
    4. (ST) Private resale home prices inch up again in May
    5. (PropertyGuru) Suburban condo prices resilient: NUS study
    6. (ST) Industrial sites draw new players
  3. Cooling measures are meant to prevent a bubble from occuring and not to cause a huge deterioration in prices (a hard landing). The finance ministry will not allow that to happen either. More importantly, the absence of a property bubble gives further insurance to everyone albeit slower capital yields that the market has incidentally overdiscounted.
  4. Over the last 12 months, the overall new and resale property prices are still higher by almost 5%. Source: PropertyGuru
Fundamentally, the sector is strong with key counters having huge diversification across segments (residential, commercial and industrial). They are also big players around the regions with strong balance sheets and cash kitties. Technically, proposition of property counters doing well has been well and truly validated by the stock market over the last 2-3 weeks and there is little sign that they will be headed for a crash as many predicted after the last cooling measures. 

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