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. 

Weekly Stock Picks - CapitaMalls Asia and Ezion Holdings

CapitaMalls Asia is a particular counter that caught my attention over the last 2-3 weeks. It is also one of the stronger counters that have outperformed the STI by almost 20 basis points and turned in around a 23% YTD gain. 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 - Short Term Rebound observed. Stars are aligning to put this stock on a upward trajectory. Nonetheless, pay attention to possible downside risks of price lowering to 1.3-1.35 (lower bollinger bands of both daily and weekly charts as well as major support horizontal at ~$1.35). Risk reward favourable and a good long opportunity is suggested. 

• MACD - Is trending upwards for last 2 trading weeks with suggestion of clearing the negative levels in the coming week.
• RSI (25d) - Is also steadily trending upwards to cross the 50% level.
• Bollinger Bands - Bollinger bands are narrowed with some possible big price movements to come.
• 20d MA - the 20d MA has clearly stabilised in the downward direction and there is some good suggestion of a local minimum. Another suggestion that upward momentum is building and this is a good opportunity to enter with low risk of selling pressure.
• 200d MA - Prices are now supported by 200d MA prevailing at support levels of $1.35. Very clear support.
• Volume - Buyer participation for the last 4 weeks has been dwindling but this has been stemming/flooring the prices at ~$1.35 levels.

Ezion Holdings is a counter that I have been seeking to own but prices have been sky rocketing since end 2011. There has been strong analyst coverage on this company and many are very bullish about its prospects with some brokerages even placing a TP $1.4 on it. Well, it is not too unexpected given that the company has been growing its income steadily since the downturn of post financial crisis in 2010. Cash reserves are being built up with some difficulty in the last year with this economic malaise. Nonetheless, the company has shown good vision in growing its business, securing more deals and income margin quite convincingly over the last 4 years. 

Outlook - Track for uptrend. The 20d MA is still showing a downtrend but other leading indicators are turning in favour of a rebound. In this jittery market, it is still better to wait for real confirmation of upward momentum to reflect in the 20d MA before deciding on the long position.

• MACD - Is trending upwards for last 2 trading weeks. Still far from the 0 level and momentum is still in the negative territory. 
• RSI (25d) - Is also steadily trending upwards to the 50% level.
• Bollinger Bands - Bollinger bands are narrowing.
• 20d MA - 20d MA is still downtrended with some suggestion of a minimum point to come but not totally indicative yet. Prices are suspended above the 20d MA precariously. More strength validation still required.
• 200d MA - Prices are seen bouncing off the 200d MA on Tuesday last week. Pretty much indicative of a strong stock in this market. 
• Horizontal Price line (red line in weekly chart) - Price is trading near the red line which is almost an average price of the stock since 2010. An almost well-valued stock right now. Considering also that earnings have been increasing, it is even more sufficient to say that the stock is slightly undervalued now. 

Lesson on Price Action

It doesn't come everyday that prices are so telling that it wants to tell us a story behind the stock.

I have pulled out an example of a recent spike in price of CapitaMallsAsia. If we trace it back to 7 Feb, we notice that the stock first staged a breakout above a major resistance level. Bullish. Then on 8 Feb, a huge white candlestick appeared together with a newer high in day volume. Bullish.
The candlestick on 8 Feb was duly supported by news from Kim Eng that states CapitaMalls Asia as buy with a target price of $1.92. Then guess what? On 10 Feb after market close, CapitaMalls Asia announced a 8.1% increase in FY 2011 PATMI.

Screenshot obtained from Capitamalls Asia website.

Prices ARE telling.

If you believe in what prices are trying to say, you can make money. Of course, we do not need to go into additional details such as short term volatility and variance in price movements due to irrational investors given the stock price did take a breather on 9 and 10 Feb, presumably due to profit taking and the Greek issues respectively. But just look at how price actions paint a good enough picture for us home traders/investors without having to go through financial statements, analysis economic risks, etc etc to arrive at a healthy decision that Capitamalls Asia is doing well and it will continue to do well.
Simple?