Weekly Update - of Stimulus and Steel

The market has turned pretty optimistic since ECB's bond buying initiative was announced last Thursday. In response, China also issued a stimulus packaged that was unveiled over the APEC meetings over the weekend that aimed to restart its national rail projects that were in limbo ever since last July due to the Wenzhou rail incident. 

Now, the flooding of money into this global malaise does seem to require some sort of concerted shake given the lengthy 'depression-like' conditions that the world has endured since 2008. Similar to the response in 2008, a flood of money from major superpowers would definitely give the economy a good boost in the short run in order to allow it to prop up and get moving on its own again. Cynics against the stimulus idea must surely take lessons from the 2008 crash that such a organised effort may will be required this time around. We must not forget that all talk but no action on the fundamental restructuring required for our global and local economies to get moving again is going to be a protracted process, cynically, may not even occur in time to come.

Then, surely, Mr Bernanke and his aides, after declaring and hinting that a stimulus package is not far-fetched in their latest Fed meeting minutes, will be putting together their pieces for a follow up to the week's actions. No wonder the market has been responding optimistically, rallying day to day. It is coming, after way too long.

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On a side note, steel play has clearly been dominant again with Midas, a steel producer with strong business foothold in China's rail industry. Its share price has already risen some 16% over the last 5 trading days on the back of very strong volumes. OCBC research has Midas at a TP of $0.435, which was just revised. Maybank just upgraded Midas to Buy with a TP of 0.48. Also, I had written a blog post over the weekend on my own analysis of Midas, with a TP of 0.45.

Steel play heating up? - Midas

Midas is a steel company that comes to direct consideration for more upside given the current resumption of rail development by the Chinese govt. It is a recovering stock that has seen a vast inprovement in its fortunes in the later half of thia year with impact expected in its 2013 FY earnings. It has sealed several successful contract wins over the 2nd half of the year as opposed to a very poor first half of 2012. In fact, a small table below has been compiled regarding its contract wins in 2012. There has been increased optimism too that it will be able to secure more rail contracts given the recovering China rail industry after the recent rail incident.

Midas contracts history for 2012 so far:

• 1 March Midas' JV Company Nanjing SR Puzhen Rail Transport Secures RMB526.9 Million Metro Contract
• 12 May Midas Secures Two Metro Contracts Worth RMB62.2 Million
• 2 July  Midas' JV Company Nanjing SR Puzhen Rail Transport Secures RMB860 Million Metro Contract
• 11 July Midas Secures New Contract Orders Worth RMB139.3 Million
• 14 Aug  Midas' JV Company Nanjing SR Puzhen Rail Transport Wins Two Metro Contracts Worth RMB1.4 Billion
• 3 Sept Midas' JV Company Nanjing SR Puzhen Rail Transport & Consortium Partners Secure RMB588 Million Intercity Rail Project
• 5 Sept Midas Strengthens Its Foothold In China's Power Industry With RMB123.4 Million New Contracts

Fundamental Outlook - Buy. It is clear that the Chinese government are indeed ramping up rail development once again after a hiatus from the Wenzhou railway incident 1 year ago. Let's not forget that it is in the interest of the Chinese government to link up cities and continue the economic boom, although possibly at a slightly lower pace from before. Nonetheless, resuming of the rail development business is definitely going to be a boon for Midas. 

On top of that, Midas is clearly diversifying in light of their recent troubles to restructure their business to also incorporate power. Their first contract of 2012 in the power industry has been secured in 5 Sept, a few days ago, to positive market acceptance. 

Finally, OCBC research also has a coverage on Midas with a buy call and a FV estimate of $0.41.

Technical Outlook - Buy. Chart is looking good with a breakout on 7 Sept on the back of news of 2 contracts being secured in the week. Not overly expensive either. TP ~$0.44.

• MACD - Has just turned upwards again and is in positive territory. Divergence also just turned positive when MACD crossed its signal line.
• RSI (25d) - Bounced off the 50% level and has some room to maneuver before the 70% levels.
• Bollinger Bands - Prices have just broken through the upper bollinger band to signify further upwards momentum.
• Breakout - A large white candlestick appeared on 7 Sept on the back of a breakout through the $0.38 major resistance. Expect this level to form good support for further challenging of the $0.44 levels for Midas.
• Volume - A huge surge in volume occured on 7 Sept accompanying the major white candlestick. 

Weekend Alert - Dow Breakout!

Alright, it was coming - a rally that would be based on the ECB's decision. Luckily for the market, it was good news on Thursday when ECB announced an unlimited bond buying programme that will supply liquidity to cash-strapped banks and to restart economic growth in the region. Whether this plan clearly works in the long run or not, or whether structural problems still inherent in the system needs to be weeded quickly, the market has responded quite favourably to this piece of news.

By Friday 7 Sept, Dow Jones index managed to mildly break the psychological 13280 level to close at 13320. Quite impressive given the short span from Thursday's ECB announcements. Market volumes have also returned in anticipation of more uptrend.