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SPH: Reading the lines.

Saturday, June 26, 2010

It is quite obvious that the Bollinger bands started expanding on 17 Jun and price rose above the upper band for the next two sessions. However, resisted by the 50dMA, price has declined and went on to test the 20dMA as support in the last session. So, for next week, the important MAs to pay attention to would be the 50dMA as resistance and the 20dMA as support.  These would be at $3.86 and $3.77 respectively.  So, I would not renew my buy queue at $3.74.  I would instead wait to see how things turn out.




MFI and RSI are both rising and this tells us that momentum is positive. However, price itself has been choppy with interchanging black and white candlesticks in recent sessions. The MACD, although above zero, looks somewhat tired and we have had three red histograms in the last five sessions.  OBV is flattish. Technically, we could also make a case that price rose on rather low volume in the last session.

If the 20dMA fails as support, the next supports are at $3.72 and $3.68.  I expect $3.68 to be a stronger support as it was a many times tested support in the recent basing process.

Now, many have been talking about the possibility of the STI going down to 2,400 points.  Personally, I blogged about it as well earlier on in mid May.  You might want to read it here: STI at 2425 points?  If this happens, what would happen to the price of SPH's shares? Would it be spared? I think not.  Then, how low would it sink to? For a clue, let's look at the weekly chart.




I would draw your attention to the declining MACD.  This has been the case since late October 09. In the same period, price has risen somewhat.  This is theoretically unsustainable. In recent weeks, as price recovered somewhat, there is no corresponding rise in the OBV which suggests that price has risen due to a lack of sellers and not because of an abundance of buyers. Volume has been similarly lacklustre.

If we believe in fan lines where traders who missed the first uptrend gets a second and a third opportunity to buy in, it is quite easy to see that the stock is now on the third line.  The initial steeper trend has been flattening into one that is more sustainable.  However, if this third line, which happens to coincide with the rising 50wMA, should break, we could see price correct to the flattening 100wMA at $3.35. Yes, why not?

I have divested quite a fair bit of my shares in SPH. Let's see if I get to buy some again at much lower prices.

Related post:
SPH: Another pleasant surprise.

16 comments:

Anonymous said...

hi AK, i have been reading ur blog for a few mths and i have learnt alot from all your comprehensive analysis on stocks.

Anyway, I have just started investing so i have some qns for you.

firstly, since i'm a student, my capital is limited and i only bought 1 lot of sph at 3.81. i saw it rise to $4+ but i did not sell since i bought it based on FA and for the long term. And also, i only have 1 lot, so i cant really divest some of it. So i was wondering if you are in my situation, would u have sold ur 1 and only lot of sph for short term profits and then buy back later at a lower price ? or just hold that lot and continue to average down assuming no chance in the fundamentals of the stock?

sry for the lengthy post

B

AK71 said...

Hi B,

I am assuming that you have set aside enough savings as an emergency fund for daily expenses before venturing into investments.

If you have done that, then, depending on your resources available and your objective, you have to adopt a strategy that works for you.

What are the strategies available? You could trade to grow your wealth more rapidly. This would require knowledge of Technical Analysis (TA). You could also choose to rely on Fundamental Analysis (FA) to buy into undervalued stocks which pay good dividends and have a chance of capital appreciation over time.

Whichever method you choose, the important thing is to make money and to minimise losses. When your resources are limited, discipline is even more important as you cannot afford to lose while trying to grow your wealth. No gambles.

Regarding your purchase of shares in SPH, question why have you chosen SPH over other counters. Since your decision was based on FA, have you ascribed a fair value to its shares? What is it and how did you arrive at the fair value? You will then know at what price you might want to sell.

http://singaporeanstocksinvestor.blogspot.com/2010/04/replies-from-ak71-time-to-buy-and-time.html

If you think you have paid a fair price for SPH and you are more interested in the strong dividends the company pays out, there is no reason to sell, is there? Remember, this is based on FA only. :)

Aspire said...

Hi AK,
Great analysis on SPH. Just to clarify though, what do you mean by "smart money" anyway?

Thx,
~K

AK71 said...

Hi K,

Smart money refers to market participants who bought in before a stock moved up in price as well as those who got out before a stock went into a tailspin. It's just jargon. :)

Anonymous said...

hi ak, sry for the late reply was working and busy with world cup :)

Anyway i only invest with money that i can afford to lose so thats y i dun really bother with the price fluctuation of the stocks. in fact, i hope the the market will crash so i can load up more.

regarding the fair value of the stock, i would like to know what methods u use to value a stock ? do you use the DCF anaylsis ? and if so, how do you calculate the variables such as the discount rate and the growth rate etc ?

regards
B

AK71 said...

Hi B,

How do I determine the fair value of a stock using FA? For me, it is quite straightforward. Look at the income statement. Determine the EPS and PE. Look at the balance sheet, check out the debts and determine the NAV. Look at the cash flow statement, determine the FCF. Then, I look at whether the company has a history of strong dividend payouts. If I am happy with what I see, I ascribe it a fair value. This is where it gets subjective. Do I want to ascribe a fair value using PE or NAV or dividend yield as a primary yardstick? This differs from person to person. :)

la papillion said...

Hi B,

May I suggest you a book by Mary buffett, Buffettology? I think you might be highly enlightened by their valuation approach if you're interested in such things. Unlike the bible of investing (security analysis and intelligent investor), this one is rather easier to read without the archaic language.

I used to do DCF for selected companies (only those with stable cash flows). Don't be too enchanted by guesstimates of value. If you want any valuation, I can calculate for you by tweaking the variables. Just GIGO - garbage in garbage out.

These days, I tend to follow AK's method. Just a quick perusal, do simple ratios, get the feel of the value and do more TA instead. As long as the price I enter gives me a good yield and/or there is a good buy signal, I'll get in.


To AK,

Hmm, analyst would switch to PE when market is bullish and switch to NAV when market is bearish. NAV is still the 'safer' valuation method but it might be so safe that you end up missing the boat. That's why it's impt to learn about timing using TA :)

AK71 said...

Hi LP,

Thank you very much for the thoughtful comments. :-)

Yes, I have noticed some analysts doing exactly what you have described. Seems sensible.

TA is definitely useful in complementing FA. No doubt about it. Continuing self education, I hope to refine my TA constantly. :)

Anonymous said...

hi ak

thanks for sharing your valuation method, in fact, my method is also quite similar to yours just that i have not much confidence since i'm just a newbie compared to you. haha

To La papillion: thx for the recommendation, i shall check out the book stores for it. anyway i bought TA Anaylsis Explained by Martin J pring to learn more abt TA, hope its a gd book :)

B

AK71 said...

Hi B,

You are most welcomed. I just finished flipping through the book you bought. It is not the most readable TA book. I find the DUMMIES series easier to digest. ;p

I am currently reading Michael Kahn's "Technical Analysis Plain and Simple", 3rd edition. It is much more readable than Martin Pring's book, imo.

Michael Kahn's TA is something I read in The EDGE weekly. This guy is good. His TA is probably the best I have seen so far, always balanced. :)

Anonymous said...

Hi ak

Michael kahn was my first TA book ( eBook in fact ) It was quite " cheem " to me at the time i was reading it haha. I shall re-read it again after i finish the martin pring's book which is also "cheem" to me now.

Btw, do u buy those books u mention or do u read the eBook version? i think its easier to concentrate with a physical book since its quite tiring to stare at the monitor for a few hrs of reading. And if you bought those books, may i know where is the cheapest bookstores i can get them since i'm quite a cheapskate person :)

Regards

B

AK71 said...

Hi B,

I think Michael Kahn is more up to date in that his writings have a contemporary feel to it. Pring's book feels a bit dated and even the language feels a bit old. I started out with books from the DUMMIES series. They are really easy to read and absorb.

I bought Pring's book at Parco Millenia Walk MPH's opening sale. 30% discount. I bought Michael Kahn's book recently when the same MPH took part in GSS. 30% discount. The DUMMIES series, I bought at PageOne where I have discount as a member and I get 30% discount on my birthday. The Warren Buffet book belongs to a friend but it was bought during a MPH sale at 20% discount. So, wait for a sale! ;-p

I enjoy physical books more too but ebooks are probably the way of the future. Books are bad for the trees and take up so much space but I still like the real paper stuff. ;)

Reading TA books is necessary but nothing beats practice. You just gotta chart, chart and chart daily. Practice will not make perfect but there is no other way, I always say. :)

la papillion said...

Hi B,

Erm...email me to find out where to get such books ;)

Oh, I've martin pring too. However, the easiest and most readable TA book I've read are from Dr Alexander Elder. Just email me :)

If you really need a physical book, don't get it from the local bookstores. It's cheapest from here:

http://www.bookdepository.co.uk/?a_aid=120275
(BTW, delivery worldwide is free...fantastic. Gf tried it before, perfect condition upon delivery)

Or if you local online stores to make sure your books dun go missing, you spend a little more at Berkshire Business books.

http://www.berkshirebusinessbooks.com/

Good service. Plus, I've tried it before so I can vouch for it.

AK71 said...

Hi LP,

Facilitating the spread of knowledge, I see. ;p

Thanks for sharing all the resources! :-)

CreateWealth8888 said...

Me no cheem on TA as I only have the brain of a lizard. Just simple support, resistance and trendlines and lots of patience like a fisherman waiting for the fish to get hooked.

Who Moved My Market?

http://createwealth8888.blogspot.com/2009/11/who-moves-my-market-part-4.html

AK71 said...

Hi CW,

Many roads to Rome, I always say. Thanks for sharing. :)

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