Rationale for partial divestment

Amongst the three counters I am actively monitoring, I remain heavily vested in only one counter: Saizen REIT. I have divested 90% of my position in Golden Agriculture and 80% of my position in Healthway Medical in the recent run up in prices.

From 4 Jan, the first trading day of 2010, Golden Agriculture raced from 51c to a high of 65.5c for a gain of 14.5c or 28%. Healthway Medical blasted through the roof as it started the year at 14c and hit 19.5c for a gain of 5.5c or 39%! In both instances, partial divestments took place at every resistance level as the prices rose.

Now, have I changed my mind about these two counters? No, of course not. The fundamentals and prospects are still good over the longer term. I just feel that the market became a little too enthusiastic and sent prices up too high and too quickly. I liken it to a sprinter who is able to run very quickly over short distances but the speed is unsustainable over longer distances.

Knowing which companies' shares to buy and when to buy them is important but knowing when to sell the shares is equally important. For sure, if we simply hold on to the shares till they reach the zenith before selling is one way. However, to grow our wealth more quickly, selling at resistance levels and repurchasing at supports for the next leg up could be more rewarding. It is with that mentality that I partially divested my shares of Golden Agriculture and Healthway Medical.

What about Saizen REIT? It started the year at 15c and reached a high of 18c for a gain of 3c or 20%. Not too mean either. I identified Saizen REIT as a yield counter for regular passive income. Conservatively, I expect a yield in excess of 10% per annum from middle of 2010. With that in mind, I am not too keen on divesting my investment in Saizen REIT unless the price is extremely compelling. Three portfolios and three counters: future gains and passive income.

The stock market climbs a wall of worries and goes down a river of hope or so the saying goes. Basically, it means that prices do not go up or down in straight lines. If the prices go up without a break, it means that the wall of worries is non-existent. I would worry in such an instance! It usually means that the market is euphoric and we have buyers rushing in en masse.

When we have almost full participation in the market, there is very little fuel left to push it higher. That is when the market reverts to the mean. Anytime, when too many people shift to one side of the boat, a shift back to the other side is necessary to maintain equilibrium.

In an article I read this morning by ETF Guide, it says,"Investors Intelligence tracks the recommendation of different market advisors. As of the most recent poll, 53.4% of all advisors are bullish. 30.7% of advisors are longer term bullish...... " It went on to say that even the market high of October 2007 did not get such a positive response. This is a wake up call and contrarians are taking note. Marc Faber is probably one of the first to sound the warning and I talked about this in a post yesterday: STI: Up or down?

Right, this is where I sign off. I will be going away for a short holiday from tomorrow and will not be adding new posts for a few days. Thanks for the overwhelming support so far and I hope my posts have been useful and in some cases, maybe, inspiring. I wish everyone the best of luck and, remember, always hedge and come back often.

Golden Agriculture: As per expectations

Golden Agriculture is behaving according to expectations. Closing at 57c on lower volume suggests that if the price retreats to the gap support at 54c, we should expect some strong support. Although if 54c gives way, the steeper orange color trendline would be violated and the gentler green color trendline would come into play. The latter, incidentally, coincides with the 38.2% Fibo line at 50.5c and should be a very strong support. I am going to accumulate on the way down at supports as the longer term fundamentals of crude palm oil remain intact.

Healthway Medical: Decline continues

On 13 Jan, I said, "Even though the continuing sideways movement in price is taking place on the back of reducing volume, without any significant buying up activity, price is likely to lower in time." Healthway Medical: A grave situation?

Today, Healthway Medical closed at 17.5c on relatively low volume. For people who are waiting to accumulate Healthway Medical shares and would like to hedge, one bid above the support provided by the 61.8% Fibo line seems like a fair proposition. I like accumulating shares at support levels on the way down. 61.8% Fibo support at 16.5c looks attainable as the declining OBV tells me that distribution is underway.

Saizen REIT: Accumulate at supports

Saizen REIT retreated from 18c to close at the resistance turned support level of 17c today. An overnight buy queue at 17c which I put in as a hedge was done. I like accumulating shares when they are consolidating or coming off their highs to hit supports. With a high of 18c achieved in the last session, I have drawn the new support levels using Fibo lines. If the support at 17c gives way, next supports are to be found at 16c (61.8%) and 15.5c (50%). Of course, I will be accumulating at those levels as well.

Upside targets remain at 19c and 21c. Eventual target is at 24c.

STI: Up or down?

Looking into crystal balls can be hazardous to health because they give you signs of what might be and not what will be. Usually cryptic and sometimes perverse, it's best to avoid these magical objects. However, being human, I have the failings of our kind, the type of failings which got us kicked out of Paradise in the first instance.

In a post dated 12 Jan, I wondered if a correction was at hand and on 13 Jan, it looked as if a correction was underway. For a recap, please seeConfirming the signs. However, on 14 Jan, things did a u-turn and that got people wondering if there would be more upside to come.

To me, the recent ups and downs of the STI is a sign that a correction is probably going to happen. A 3000 points initial target which so many analysts have talked about is so near and yet so far. The market is grudging and unwilling to give bulls the satisfaction (yet). Analysts have also talked about a 3300 points eventual target for the STI by end 2010. That's a mere 10% from where we are now.

Marc Faber, in an interview with Yahoo! Finance on 13 Jan said that he is no longer bullish on stocks because everyone is now bullish on stocks. Marc is a shrewd contrarian who has been proven right time and time again. He made the observation that many stocks' prices are flattening out and that once the momentum fizzles out, momentum players who are in the market for the upward momentum and not to hold long term positions, will pull out and they will pull out fast! We will then have a correction in earnest. It would be prudent for us to take Marc's views seriously.

What are we to do? I suggest keeping an eye on the newsflow and on the STI at the same time for signs.

During the recent multi-months recovery from the market bottom, we saw how streams of bad news were brushed aside as the market powered upwards. That was a powerful sign that a cyclical bull was charging back. It was a sign which many ignored much to their regret later on. At best, disbelievers missed out on a money making opportunity of a lifetime. At worst, shortists were caught with their pants down and lost their pants in the process (and some even got spanked on their backsides).

If we get a constant stream of positive newsflow and the STI hardly budges but a slight whiff of negative news sends it down, the signs are clear: a correction is not far away.

A saying from Warren Buffet now rings clear in my mind: Be fearful when others are greedy! That is a generalisation like many of his sayings. It serves to inform and not to instruct. That's where many would be Buffets got it wrong. They think his sayings are instructions.

Personally, I believe in being a pragmatist and not being overly bullish or bearish. I believe in hedging. I have taken some profit off the table, leaving some long positions in the market in case it decides to go higher. After all, crystal balls reveal only part of the picture, leaving us to form our own conclusions and, usually, we see what we want to see.

Video added on 11 Feb 2010:

SPH, Healthway Medical and Golden Agriculture

SPH
After the positive newsflow yesterday, SPH powered upwards to $3.82 forming a wickless white candle today. This effectively broke the resistance provided by the declining 200wMA at $3.80. As the white candle day took place on the back of very much higher volume, the target of $4.00 which I identified in earlier posts looks attainable. This is especially so with the MFI rising rapidly today but has yet to reach the overbought region. To those who hedged and bought some when SPH was at support ($3.60 to $3.62) recently, congratulations.

Healthway Medical
A black candle day and Healthway Medical closed lower at 18c on higher volume. The gravestone doji was a harbinger of bad news, after all. MFI continues to decline and is emerging out of the overbought region. Expectation is for the weakness to continue. Support levels identified in an earlier post are still valid.Healthway Medical: Black spinning top.

Golden Agriculture
A white candle day on reduced volume does not impress me. Unable to gap close on a white canlde day is a bearish sign and the gap resistance at 61.5c remains. I am still of the view that the price will weaken and, therefore, I shall wait to accumulate at supports on the way down. If the price should rise instead and the gap resistance is taken out, initial resistance would be the recent high of 65.5c and the eventual target is 69c.

Saizen REIT impresses

Saizen REIT broke the 17c resistance level, forming a wickless white candle and closing at 18c in the process. This is on the back of very much higher volume and, if the move is confirmed in the next session, effectively turns the 17c resistance into support in the near term. The rising MFI is on the way to forming a higher high. As the index is not overbought yet, a follow through in the next session might see the initial target of 19c tested.

Please refer to my post on 11 Jan for a recap. In that post, I said "if 17c is taken out convincingly, the initial target is 19c. The rapidly declining 100wMA at 21c should put a cap on gains should 19c be taken out this week."Saizen REIT: Sell signal negated. If 21c is taken out, I see an eventual target of 24c which was a candlestick support level that gave way decisively in October 2008 and is now a gap resistance.

Saizen REIT is one of the three counters I've identified in the last few months that would help to build my wealth in 2010. Its fundamentals have strengthened and the market will recognise this in the usual way. Three portfolios and three counters: future gains and passive income

AusGroup closed unchanged

AusGroup closed unchanged at 68.5c, forming an inverted black hammer in the process. This was after forming a doji yesterday. Both candlesticks are signs of a possible reversal. Volume on both days were relatively low which suggests that the selling pressure is probably easing and AusGroup has found support. The flattening 100dMA happens to be at 68.5c. Over a longer term, the MFI is still uptrending and the counter's current weakness might just be temporary. The fast rising 200dMA is a positive. A hedge at 68.5c for someone who does not yet have a position in this counter is not a bad idea. To accumulate, I always like to buy on the way down at every support level. 68.5c looks like one to me. If 68.5c breaks, the next support is at 66c.

Resistance is provided by the rising 200wMA at 74.5c which also happens to be the most recent high achieved on 5 Jan 10. Overcoming this resistance level would give an intial target of 78.5c and an eventual target of 83c, a candlestick support level which broke decisively in June 2008.

Golden Agriculture: A choppy journey

My blog is pretty new but if you have been following my writings for at least the last week or so, you would know that I'm big on Golden Agriculture. In a post on Christmas Day, I wrote about three portfolios and three counters. One of the counters is Golden Agriculture which I called a cyclical counter as it is most sensitive of the three (the other two being Healthway Medical, a growth counter, and Saizen REIT, a yield counter) to economic cycles.

In that post, I said, "Currently at 49c. This is the second largest crude palm oil (CPO) producer in the region. It is heavily levered to the price of CPO compared to Wilmar which has a greater percentage of income from downstream activities. Whether we look at PE, ROA, ROE or Gross Margin, Golden Agriculture looks better than Wilmar. With the improving global economy, the demand for CPO has increased. With the rising price of crude oil, there will be a further increase in demand for CPO as an important source of biofuel. The journey up will be choppy which makes this a perfect counter for trading."Three portfolios and three counters: future gains and passive income

If anyone who were not vested before had taken a position in Golden Agriculture then and sold in the last few sessions at resistance levels on the way up, say at 54c and 62c, he would have made a handsome profit. I know it reached a high of 65.5c but few would have been able to time it that well.

From my earlier chart reading, I said we might soon have a golden opportunity to load up on Golden Agriculture again with a correction in price as true to expectations, the ride is choppy.Golden Agriculture: A golden opportunity.

Crude oil has been trading lower and is down at US$79.13 as of now. Crude palm oil (CPO) has been down for a few sessions now, closing at RM2,510 in the last session, down 1.8%. There is concern that rising production and lower exports may drive stock levels to a new record high. Apparently, America is having a good harvest of soybeans as well which will help put a lid on the price of CPO as a greater availability of soyoil will dampen the demand for CPO.

With such negative newsflow and as Golden Agriculture is the most levered to the price of CPO amongst all the CPO companies listed in Singapore, it will bear the brunt of lowered expectations. With a bearish chart to boot, I would be surprised if Golden Agriculture does not test those support levels identified in my earlier posts.

SPH: Net income in Q1 doubles

SPH delivered a set of impressive results, as expected, as first-quarter net income rose to $144.7 million from $73 million a year earlier. This is likely to give its share price a bit of a push upwards tomorrow despite the bland technicals.

Rising 100dMA provides support at $3.62 and with the positive news flow, it should limit any downside. If price closes above $3.69, a many times tested resistance level tomorrow, it would likely move up to test the resistance provided by the declining 200wMA at $3.80. Breaking $3.80 would give a target of $4.00.

Healthway Medical: A grave situation?

Towards the last half hour of the trading day, it was quite apparent that the bears have won the day. There were too many sellers with almost no buyers and price closed at 18.5c to form a gravestone doji. Selling down activity accounted for 24.6m shares while buying up activity accounted for a paltry 1.2m shares.

The steep uptrend seems ultimately unsustainable. Sell signal on the MACD is confirmed while the MFI moved lower, remaining overbought. Even though the continuing sideways movement in price is taking place on the back of reducing volume, without any significant buying up activity, price is likely to lower in time.

Strategy: I have divested more of my position in Healthway Medical in the last half hour of the trading day. What remains is 20% of my original investment. I now look forward to accumulating at supports as the expectation is for the counter to do a correction in price.

Golden Agriculture: A golden opportunity

Golden Agriculture confirmed the bearish signals seen yesterday with a gap down today. Opening at the psychologically important 60c level, it quickly turned that into a resistance level, resulting in a black candle day on rather high volume. Sell signal is confirmed on the MACD. The MFI continues to decline, moving out of the overbought territory in the process. The counter is no longer overbought but such black candle days usually have some momentum and the expectation is for a further decline in price. A major support level is at 54c.

Despite the fall in price, the uptrend for Golden Agriculture is still intact. I have drawn three trendline supports in blue, orange and purple colors. Comparing the high achieved just three sessions ago with the trendline supports, we get an idea of how the rapid rise in price was not sustainable. It would be nice to see the blue trendline tested sometime in the next few sessions and holding, failing which the orange trendline comes into play. With improving fundamentals, I do not expect Golden Agriculture to fall to test the purple trendline but, of course, nothing is for sure.

Strategy: This correction presents a golden opportunity to accumulate. Having divested 90% of my position at every resistance level on the way up, I will now accumulate at every support level on the way down.

Mid-afternoon take: AusGroup

On 9 Jan, I wrote in a post that "AusGroup had a sell signal on the MACD on Thursday (7 Jan). In the near term, price seems set to go lower. Initial support is at 69c, a many times tested candlestick support level. The cluster of rising 20dMA, 50dMA and 100dMA, all within close proximity of each other, should limit downside to 66c which coincides with the 50% Fibo line."AusGroup

AusGroup closed at 68.5c in yesterday's session and is now hugging the 100dMA and the 20dMA supports which are at 68.5c and 68c respectively. MFI has formed a lower high indicating weakened buying momentum and the OBV has gone flat. Despite the ugly black candle formed in the last session, the uptrend is still intact. If the support at 68c gives way, next support is provided by the 50dMA at 66c.

The current uptrend is negated if price closes below 65c this week. From a technical perspective, the probability of this happening is rather low. Having said this, we want to see AusGroup forming a higher low to confirm the uptrend in the next few sessions. The previous low was at 63c on 23 Dec 09.

Confirming the signs

A host of negatives with Alcoa reporting a US$277 million loss, the U.S. Commerce Department reporting a deficit in international trade of goods and services which expanded 9.7% to US$36.40 billion and with China raising its banks’ reserve ratio to cool economic growth, sent markets lower.

After wondering aloud if we were seeing the beginnings of a correction last evening, the STI confirmed my suspicion this morning in a most sporting manner. If we look at the daily chart, sell signal on the MACD was spotted on 7 Jan. Candlesticks are detaching from the upper limits of the Bollinger bands as the MFI formed a lower high. Movement has a definite downward bias on a decline in buying momentum. With the MACD poised to do a bearish crossover, more downside cannot be ruled out.

The previous uptrend channel resistance for the STI should now provide support at 2,860 through early next week. If the index breaks this support, it would rejoin the channel. Having said this, with the 20dMA, 50dMA and 100dMA all rising and each within 70 points of each other, more or less. The outlook for STI's uptrend is still good. The correction will be a good opportunity to accumulate shares of good companies as prices move closer to supports.

Reading the signs

Are we seeing the beginnings of a correction? The European markets are now in negative territory. U.S. futures are also down as of now. I personally feel that we are missing a much needed correction. A correction will be good as it shakes out the weaker holders. It also allows unwinding of overbought conditions and lets serious investors accumulate more at lower prices. This gives a more solid platform for further advances in future.

For the counters I'm actively watching, there is nothing remarkable. So, I'm just going to list my observations here:

Saizen REIT:
There is no follow through on the MFI today. The uptick in buying momentum seen yesterday fizzled out today. 17c remains the resistance to watch while downside support is seen at 15.5c. All the MAs on the daily chart are rising with the exception of the 100dMA which is flat. With all the MAs clustering closer together, there is limited downside in this counter but I am still waiting for a pullback closer to support before accumulating more.

Healthway Medical
We have a sell signal on the MACD today on the daily chart. The MFI has turned down, indicating a reduction in buying momentum but the index is still in the overbought territory and should have some way to fall. The price action has finally detached from the upper limits of the Bollinger bands as it closed at 18.5c today. Initial support is at 16.5c. I will accumulate at every support level on the way down just like how I sold at every resistance level on the way up.

Golden Agriculture
The chart is similar to Healthway's. We have a sell signal on the MACD and the MFI has turned down although it's still in the overbought territory. Price action formed an ugly black candle on rather high volume. Closing under 62c, the previous target price and resistance, is ominous. Initial support is at a round number, 60c. If that breaks, a strong support band is to be found at 52c to 54c.

SPH
Although SPH averted a sell signal on the MACD, price action formed a devilish inverted cross, a bearish candlestick pattern. MFI is still rangebound even though it has moved to the upper end of the range identified in my earlier TA while OBV has turned down again. I like SPH but I will wait a bit more to accumulate at a lower price.