Weekly Update - NOL, Yangzijiang, Swiber

Current Market Theme:
Favour oil & gas counters with solid order books for the current market recovery. Expect more new deals in the pipeline given the lifting outlook with emerging economies such as Latin America where oil exploration has always been key.

Also favour shipping companies given recent China's recovery and improved export data. Reports suggest that China may overtake US in economic leadership by 2014 so good news in China is good news for world trade. Europe and US are in a period of trade stagnation but no major shocks to be expected.

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1. Neptune Orient Lines (Shipping)

• Breakout in this week with high volume sending stock to a price of $1.31.
• MACD - positive divergence and trending into the positive
• RSI (25w) - crossed 50% and headed for 70%
• Price Target - $1.44 (~11% from current levels) over the next 3-4 weeks.

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2. Yangzijiang (Shipping and Oil & Gas)
The market has been viewing company's decision to enter into the Oil & Gas competition favourably. Bagging its first deal at a much lower revenue (and possibly profit margin) than a similar rig done by Keppel Corp, this is a significant milestone for the company and yet it speaks volumes about the intense competition and journey ahead. Kudos nonetheless to the management for diverting underutilised resources away from ship building to rig building.

• Breakout in this week with high volume sending stock to a price of $1.115.
• MACD - positive divergence and trending into the positive
• RSI (25w) - crossed 50% and headed for 70%
• Price Target - $1.32 (~19% from current levels) over the next 4 weeks.

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3. Swiber (Oil & Gas)

• Continuation of upward trend with increased trading volume this week.
• MACD - positive divergence and trending in the positive
• RSI (25w) - crossed 50% and headed for 70%
• Price Target - $0.71 (~8% from current levels) over the next 2 weeks.

The Shipping Conundrum - NOL

Today, NOL, on the back of a 2.75% day rise, had been removed as a component of the STI and replaced with the newly SGX-listed IHH trust. Changes will take effect on 24th Sept.

The news for shipping counters really just gets worse and worse, doesn't it? In the public focus is China's slowdown where the biggest hit industry has to be that of commodities. After all, when the biggest importer of goods starts to consume less, the first hit will be raw materials and food that has been fueling its meteoric rise in the last decade. And with Europe in deadlock, and US import/export imbalance swaying without much consensus, it is no wonder that the next most correlated industry - shipping - will also bear the brunt of this economic tide.

However so, it is both good and bad news that shipping industry has been battered since 2008 owing to a supply glut, much far ahead in time than last quarter's China hard/soft-landing quibble. In fact, prices of NOL, Cosco, Yangzijiang seemed so floored that China and US slow down in the last quarter almost failed to decrease its stock prices much further. 

Now, with investors coming in to buy on the cheap, as some people have started to buzz about, shipping counters are soon to be in the spotlight again as the 'cheap buy'. 

Is it really the cheap buy?

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Weekly Stock Picks - Yangzijiang, Capitaland

The property sector has been rebounding strongly this week, led by counters such as OUE, Keppeland and even s-chips like Yanlord. However, one stock stands out in this property rebound - Capitaland. Instead of following the wide sector consensus, the stock has instead diverged and went against the flow. 

Outlook - Track closely for rebound in the week. Enter and follow market up to around $2.6 and take profit.

• MACD - Dipped to the lowest levels seen in 2 years. Some suggestions that MACD is about to turn upwards (green histogram bars) but still needs more confirmation in the coming week.
• RSI (25d) - Touched 30% firmly. Over the last 6 occasions in the last 2 years, whenever RSI did hit 30%, a rebound in stock price usually followed. 
• Bollinger Bands - Very wide bollinger bands and volatility for profit play. Price of around 2.45 is very close to lower bollinger band providing a greater chance of a near term rebound.

Yangzijiang had been battered badly since March when it reached a high of $1.4. Together with Cosco and NOL, they paint a picture of the malaise that the shipping industry has been facing ever since 2008 without a credible answer to the oversupply situation and more recently, the battering ram of Europe. It is however not difficult to believe that the Baltic Dry, at its current ~1000 levels, as providing one of the lowest support levels of current time. Over 4 years, news have been battering ships - how worse can it get?

Outlook - Buy on the consensus that it is in for a long investment period. Right now there is nothing to suggest that the stock may go any lower than 2011 lows unless incredible mayhem strikes Europe. Risk-defined and just be prepared to hold for a while at current levels. The time where shipping returns again is a guess as good as yours and mine.

• MACD - Well at 2 years low and crossing over the signal line in the week seemingly.
• RSI (25d) - Touched 30% 2 weeks back.
• Bollinger bands - A technical rebound was observed after the stock went below the lower bollinger band to close at around $1 on last Friday.

Yangzijiang Reaching Overbought Levels

Yangzijiang has been performing very well lately together with its fellow maritime counterparts given the slightly improving economic outlook coupled by the encouraging data that US is leading Europe out of its recession and problems. Last week, we saw interest in Cosco begin to take a breather as its price started to lose momentum at its peak. Given that Yangzijiang had not increased as much as Cosco in the turn of the year, it was understandable that it was still having some upside this week. However, could it be time for it to give up some momentum?

Yangzijiang on the daily.

Yangzijiang on the  weekly.

As it seems, with the Fibonacci projections, its daily stock price has reached a take profit level and probably almost time for a breather. On the weekly, the RSI indicator is trending very close to 70, a region that suggests overbought conditions even after smoothing out daily volatility.
For those vested, as it seems, it is a good time to take profit since it has risen considerably. You do not want to be finding the peaks - take your profits first. Of course, there might be further upside given the strong volume and price action on 9 Feb but stock price is fast trending to danger region.
For those who are not on the boat, you are better off elsewhere!