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A tale of two blue chips: F&N and Keppel Corp

Saturday, February 6, 2010

A late night chat with La Papillion in his cbox led to a comparison between F&N and Keppel Corp.  I decided to do a TA on both counters to see which one has relative strength.

F&N's close at $3.83 is supported by the rising 200dMA and the trendline support which I have drawn in orange color.  Further decline in price would mean that the uptrend is over and it's a double whammy for F&N as the 200dMA which is an indication of long term trend would be violated at the same time. A quick look at the weekly chart indicates the next support to be provided by the 100wMA which is at $3.65.




Using two sets of Fibo lines, we see that the $4.00 mark has two Fibo lines which are very close to each other which indicate that it is an important support.  This is further confirmed when we realise that it is a many times tested candlestick resistance turned support as well.  Breaking this critical support on 2 Feb was a very bearish sign.

The MFI continues to decline and has formed a new low.  It is nearing the oversold region.  That the volume has been diminishing as the price weakened in the last two weeks is a positive for the bulls.  There is a chance we might have a candlestick formation known as the morning star if the price opens higher than $3.89 in the next session and closes higher.  For those who have bought some in the last session or two, good luck.

Keppel Corp's chart, relative to F&N's, shows some strength.  Overall, Keppel Corp's price is being held down by a gently rising 200wMA. Everytime its price approaches the 200wMA, it would pull back. The 200wMA is currently at $8.87.

The buying momentum has not weakened as much as F&N's as could be seen in the MFI.  The index has been forming higher lows and recently formed a lower high.  However, breaking the 100dMA support on high volume to form a doji at $8.18 isn't exactly comforting. 



Of course, it is possible that the price action is setting up for a morning star formation as well.  This will transpire if next session sees the price opening above $8.20 and closing higher.  In the next session, we will also have confirmation if the 100dMA is now a support turned resistance at $8.26 thereabouts. 

I have drawn the trendline support in orange color and just like F&N, Keppel Corp is resting on the trendline and if price weakens further in the next session, the fast rising 200dMA is at $7.75 and should provide support. 

Both blue chips, in my opinion, have a strong thrill factor at the moment. To those who are vested, sit tight for the ride and good luck.

Related post:
Revisiting Keppel Corporation.

A capital question: how much to have or how much to use?

I remember reading a book titled "The Swiss Family Robinson" in my school going days.  It was one of many classics such as "Black Beauty" and "Call of the Wild".  

It is very strange but most people who are younger than me by just, say, 6 or 7 years have never read these books before.  Classics, they are.  Anyway, I digress.

The book in question is about how a family got shipwrecked on an island and had to to use whatever was available there to build a life for themselves and over time, they did quite well.  Very resourceful family.  The father would praise his children if they came up with a good idea by saying: "That's a capital idea!".  

I have yet to come across anyone in real life who would use the word "capital" in the same way.  It might be a very English or a very archaic usage since the book was written in the 19th century.  

Now, that brings me to the topic of this post: capital.  Specifically, capital for investing in the stock market.

Now to do my impression of Forrest Gump: 

"My mama told me that I must pick the right people when I want to talk about stocks which are undervalued as not everyone has the ability to buy."  

Very true but it is hard to identify the "right" people, you might agree.

So, there is an advantage about sharing ideas in a blog.  Visitors who come to my blog are probably interested in investing and making money in the stock market and probably have the means to do so.  

I hope I am right and not being delusional on this point though.

I like the saying that we can bring a horse to water but we cannot make it drink and I've had more than my fair share of horses which do not drink.  Maybe, they were actually camels and my ageing eyes mistook them for horses. 

I digress again.

Back to the topic.  

Now, having some capital is one thing, a question often asked is how much do we need to have exactly before we start investing in the stock market? I have been asked this a few times before.  

A hairstylist asked me if S$10k was enough.  The concept of "enough" is relative like so many things in life.  Very few things in life are absolutes.  However, the question of whether something is "enough" is a very prominent one in life.  

How much to have?

I will use a real life example which happened to someone I know as an illustration.  He had only $5k in savings and went into the market in 2008.  Even with the market running up in the last one year or so, his initial investment is still worth less than $5k today but having used up all of his capital in 2008, he could only watch silently as the market recovered.  Well, he wasn't very silent about it but you get the point.

Then, am I suggesting that if we had only $5k in capital, we should not participate in the market, that we should have more capital before buying shares?  

No. Spare cash that is not needed in the near future or is not part of an emergency fund (e.g. 6 months worth of expenses to be put aside in case of unemployment), should be made to work harder for us.

It is, quite simply, a question of proportion.  Of course, with only $5k, the choices are more limited but the idea is the same as for someone with $50k or $500k.  

Don't plonk all of it down at the same time on one counter or a few for that matter. Always hedge since nothing is ever for sure.  

The question is how much to use for each trade, 10%, 20% or 30%.  

This is up to the individual.  The idea is to reduce risk and taking small steps reduces the probability of a fall.

There is nothing wrong with a $1k value for each transaction and in the process incurring a 3% cost (based on a minimum of $28 brokerage fee per transaction plus other costs) if you were to make more than 10% per annum on that decision.  Nothing wrong at all.  

Rome was not built in a day.  

Wealth building takes time, realistically.  More haste, less speed.

Over time, as our capital grows due to increased savings through employment, capital gains from investments, dividends from investments or some other means, we should not forget this very simple concept.  

"How much to use?" is very often a more pertinent question than "how much to have?".  If you think about it, it applies to other aspects of life as well.

Related post:
Excuse me, are you an investor?

Golden Agriculture: Doing a flip flop.

Friday, February 5, 2010

When Golden Agriculture confirmed the 52c support yesterday, I said that "I would have liked to see the volume expanding more convincingly as well as to see a more enthusiastic candlestick instead of a doji. The confirmation, to me, at least, looks just a tad unconvincing." 

Today, 52c has become resistance again.  This needs confirmation next week.  Since I talked about volume yesterday, what about today's volume?  It's only a tad more than yesterday's.  So, the sell down is unconvincing either.  This is beginning to look like a narrow rangebound trading pattern with neither bulls nor bears gaining the upper hand.  The crucial support level at 50c was retested today and held firm.



Strategy:  I have already added to my position at support.  Longer term uptrend is intact.

Healthway Medical: Accumulate on weakness

Healthway Medical managed to close unchanged from the previous session at 15c after opening at 14.5c.  Is this a sign of real strength or is it an illusion?  Thin trading volume with a rising MFI suggests that the weaker holders are being shaken out.  Healthway Medical may very well test the 38.2% Fibo support identified earlier and that is at 14c.  The fact that this coincides with the rising 50dMA lend credence to the claim that 14c is likely to be a strong support.  Worst case scenario is a retreat to the 100dMA at 13c which is also a many times tested candlestick resistance level and is, therefore, likely to be an even stronger support level.




Strategy:  I will accumulate on further weakness as I see limited downside.

Saizen REIT: Still accumulating

Saizen REIT touched 15.5c today again on low volume and I was lucky enough to get some from my overnight queue. 



I have drawn two trendlines: a steeper one in orange color (Uptrend 1) and a gentler one in brown color (Uptrend 2).  Touching 15.5c today, Saizen REIT tested the uptrend support of Uptrend 1 and rebounded to close at 16c.  Not only is 15.5c a trendline support, it is also the 50% Fibo support.  Downside risk exists but looking at the diminishing trade volume, a huge price movement downward is unlikely.  The 100dMA which is about where the 38.2% Fibo line is should provide strong support at 15c.  In the most bearish scenario, I do not see Saizen REIT breaking Uptrend 2 which is at 14c, thereabouts.

MFI did not rebound off the 50% mark as I thought it might in an earlier post.  Instead, it is moving closer to 20%, the border of the oversold region.  This is good, in a way, as when the rally comes, there will be more room for price to move up before it becomes overbought.

Strategy:  15.5c is a nice entry price with limited downside.  I will continue to accumulate on weakness.

Strategy update: Healthway Medical and Golden Agriculture

Thursday, February 4, 2010

Healthway Medical:  Price closed at 15c on even lower volume.  Closing at 15c, however, has not broken the downtrend resistance.  So, the bulls have to keep their bottle of champagne for now.  The larger picture has not changed though.  As volume continues to decline, the low volume pullback theory strengthens; selling lacks conviction.  MFI, a momentum oscillator, continues to rise which suggests buying momentum is gaining, although slightly. 20dMA has completed its downward turn and seems ready to fall, suggesting short term weakness.  However, the 50dMA (at 14c) and 100dMA (at 13c) are still rising which suggest that the trend is still up over the longer term. 

Strategy: Unchanged from yesterday.
----------------------------------------------------------------------------------
Golden Agriculture:  That the 50dMA at 52c is resistance turned support has been confirmed as the price action closed at 52.5c today.  I would have liked to see the volume expanding more convincingly as well as to see a more enthusiastic candlestick instead of a doji.  The confirmation, to me, at least,  looks just a tad unconvincing.  MFI did rise above the oversold region which shows that buying momentum has again turned positive.  Let us see if the buying up follows through.


Strategy: I bought more at support (52c) and now look to selling if the expected rise in price takes place.  Strong support is at 50c and, if that fails, the 100dMA is at 48c.  As usual, I would sell at resistance levels as the price goes up in such an instance, with initial resistance being at 56c (20dMA and 38.2% Fibo).  If 56c is taken out, price action is likely to retest 59c, a many times tested candlestick support and resistance level.

Golden Agriculture: 50dMA recaptured.

Wednesday, February 3, 2010

Today, crude palm oil (CPO) closed at RM2,498, up RM46 or 1.88%. Crude oil is again above US$77 and this is good news for CPO. Golden Agriculture's price action recaptured the 50dMA at 52c, closing at 52.5c.  That the 50dMA is resistance turned support needs confirmation tomorrow.  MFI is still at 20% which means that any move up in price has lots of room before the counter becomes overbought.  Initial resistance is provided by the 20dMA at 56c which is also a 38.2% Fibo resistance.

Healthway Medical: Finding support?

To say that Healthway Medical's uptrend broke down a few sessions ago is to state the obvious.  The 20dMA is a support turned resistance at 16.5c.  So, it makes sense to reduce exposure at resistance and to re-enter at support in such a situation.  That time for selling at resistance has come and gone.

If you remember, I said I am waiting to see if the supports hold and to wait for a better time to add to my position.  You might also remember that I said I look at 15c as an important XR support level and that I am almost sure that the 50dMA support at 14c would hold, if tested.  A regular visitor to this blog, CL, asked if it would reach 13c which is where we find the 100dMA.  This, I said, is possible but less probable.




Healthway Medical's price action formed a dragonfly doji to close at 15.5c today on even lower volume.  The dragonfly doji is a bullish candlestick.  It seems that the 15c support is not calling it quits and is holding up quite well.  Added to this is the very low volume which confims that the sell down lacks conviction.  MFI formed a higher low and has turned up.  Watch the green line I have drawn beneath the MFI.  We want to see the MFI forming higher lows for the price to move up convincingly.

Any move up in price would meet with initial resistance at 16.5c, the 20dMA.  Breaking resistance at 16.5c could see the price testing the recent high of 18.5c, which is probably a strong resistance level.  Breaking this would probably see the XR eventual target at 21.5c tested.

I drew a trendline in orange color on the price chart.  Trendline resistance is at 15.5c.  If price action breaks this line soon, it is good news for the bulls.

Strategy: 15c support is holding up, it seems.  Entering at this level is quite safe since the next support level is only 1c away at 14c.  Limited downside and a nice upside.  I have put in my buy queues for tomorrow.  Always hedge and don't be too greedy.

Golden Agriculture and Saizen REIT

Tuesday, February 2, 2010

Golden Agriculture (50.5c): Unable to close above the 50dMA today at 52c is not a good sign.  Trade volume although not expanding very much remains significant.  The fact that the MFI is bordering on the oversold region provides little comfort as it could stay oversold for a while if sentiments remain bearish.  Once again, the critical support level at 50c is in focus.  Investors with long positions in this counter like myself would want to see this support level holding up.  Fundamentally, the prospects for crude palm oil (CPO) in 2010 remain positive.  The price of crude oil will also appreciate in time as economic recovery this year gains traction on a global scale.  Golden Agriculture will remain a major beneficiary in such a situation.

Saizen REIT (16c): Another low volume day with the MFI bouncing at the 50% mark.  There is little to say here.  I am still in accumulation mode where this counter is concerned.

Healthway Medical: Downward drift.

Healthway Medical closed at 15c today on reduced volume.  MFI has also stopped declining.  All these suggest that it is more closely aligned with a classic case of low volume pull back and that it is not experiencing a massive sell off.  This does not mean that its price will stop declining, however. 

It is common TA wisdom that without any expansion in volume, any upward move in price is unsustainable.  Another common bit of TA wisdom is that in the absence of any meaningful expansion in buying activity, the chances of a continual downward drift in price is higher even if there is no massive selling.





The price is at the 15c support level now.  It is likely to test the 14c support in time although a flattened MFI, at this point in time, suggests that it might not happen in a hurry.  Of course, if there is any positive catalyst in the near future to bring buying activity back in force, things might all surprise on the upside.  This possibility seems remote for now.

Personally, I partially divested at 16c this morning the shares I bought as a hedge at 16.5c two weeks or so ago, booking a small loss in the process.  After this divestment, the Healthway Medical shares I am left with are mostly those bought between 10c to 13c last year.  These, I am quite comfortable holding for the longer term as they are actually fully paid for with the gains from divesting 80% of my original investment in the company.

Excuse me, are you an investor?

Monday, February 1, 2010

We have heard many times the advice that we should diversify our investments to minimise risk. 

For those of us who have read books about Warren Buffett, we would also remember something along the line that diversification is for the "know nothing" investor and for the "know something" investor Warren Buffett, when he identifies something good, he goes in big! 

He doesn't diversify, he concentrates!  








Of course, this is probably viable for us if we were in the same league as Warren Buffett and, of course, if we were in the same league as him, I wouldn't be blogging here and you won't be reading my blog.  

Maybe, there should be at least two more categories of investors: the "know a bit more" investors and the "know a bit more than a bit" investors.





I started out as a "know nothing" investor in my university days and would buy anything analysts recommended.  

Chasing after the flavor of the month was a regular exercise.  I would be very happy if I made money and would be very sad if I lost.  

I had no technique to speak of and did not employ FA or TA.  I did diversify since I must have had more than twenty different stocks in my portfolio at any one time.  

Did that help to reduce risk?  I think not. 

I was constantly worried about whether my stocks would make or lose money.  I didn't know what they were doing most of the time.  I would jump at the slightest noise.  Now, I'm sure just reading this short paragraph has stressed you out.






A couple of years after graduating from university, I did a diploma in business administration.  

One of the things I had to learn was financial accounting and that started me on FA.  I became a "know a bit more" investor.  

My portfolio was still very diversified and it had many counters brought forward from my "know nothing" days.  

It was really time consuming to go through every stock and much of my FA was half baked.

I then read somewhere that if we had more than 10 counters in our portfolio, that's too many.  That made sense.  






I tried to rationalise and drop some counters which were non-performers or loss makers. I tried to concentrate more of my resources in blue chips: ST Engineering, SPH and SFI are some that I do remember.  

I also loaded up big time on Capitaland at one stage but sold way too early because a friend painted a vivid picture of how the property market would not do well then. 

Lesson to take away from this: if you had done your FA well, hold with conviction and if you were not able to do this, hedge by halving your exposure, not abandon the entire position.






I decided that I was "kiasu" but I was also "kiasi".  So, strong dividend payouts became a big plus for me. 

I went in big time on REITs and other forms of trusts for the same reason, attracted by the high yields.  

I also lost big time because of REITs and other forms of trusts in this recent financial meltdown. 

Lesson to take away from this:  if someone just talks about high yields and big discounts to NAV without ever mentioning gearing, make it a point to question him or find out for yourself.






The immediate past financial crisis was in many ways the turning point of my life as a stock market investor.  Burnt badly, I decided to beef up my FA and to learn TA.  

I became a "know a bit more than a bit" investor.  What this means is that I became a bit more rigorous in my FA, depending on myself more than ever compared to listening to other people, and started using TA to find fair entry and exit points. 

I decided to extract the bad investments made in the past and put them in a frozen portfolio as a constant reminder of what I did wrong as well as the type of people I should be wary of.  

I have another portfolio of good investments from the time before the crisis and a portfolio of new investments. 






I am still as "kiasi" as ever and still want to generate a reliable passive income stream from the stock market with less risk.  

I would be very happy once I am able to achieve a passive income stream of 100k a year from the stock market.

Being "kiasu" as well, I want to grow my wealth more rapidly and in my portfolio of new investments, I am actively trading stocks of only three counters and, yes, you guessed it, they are Golden Agriculture, Healthway Medical and Saizen REIT.  Well, I guess I am trading more the former two. 

I have been accumulating units in Saizen REIT and have not sold any yet as I believe that it is still too cheap. 


For the first time in years, I am spending less time monitoring my invesments. I do not have to actively monitor more than the usual three stocks on a daily basis.  

Any time I spend doing FA, most of it is devoted to these three stocks and that gives me enough confidence to put much of my cash in them and because I put much of my cash in them, I am more careful in monitoring them.  It's a loop!  





I am not suggesting that you follow my style.  I am just sharing with you what has worked for me and what has not.  

For sure, I am far from being a "know something" investor like Warren Buffett. 

I do not think I will ever move on from being a "know a bit more than a bit" investor but this is enough for me, for now.



Related posts:
1. Grow your wealth.
2. Rationale for divestment.
3. Monitoring our stocks.
4. 101 investment choices.

A slow day

Something is wrong with Chart Nexus today.  Data for last Friday is missing.  So, I won't bother including the charts today.  Good excuse for me to do less work.

Healthway Medical: Price action formed a wickless black candle, the most bearish of candles.  The bearish crossover on the MACD has accentuated.  Bollinger bands are squeezing.  More downside would not surprise me.  20dMA is support turned resistance at 16.5c.  Supports at 15c and 14c will most likely be tested in time. I did not manage to reduce exposure at the 20dMA today.  Will see what happens tomorrow.

Golden Agriculture: The 20dMA and 50dMA are both flattening.  Might this be the start of some sideways trading?  MFI is in oversold territory and the MACD's buy signal from last Thursday has not been nullified.  20dMA provides resistance at 56c while 50dMA provides near term support at 51.5c.  100dMA which has also flattened is at 48c.  I still believe that if price moves to touch the 20dMA, it would be perfect to reduce some exposure.

Saizen REIT: Price action refused to touch 15.5c today.  Extreme low volume day.  The 50dMA, 100dMA and 200dMA have flattened.  Should we expect sideways trading for a while from now?  MACD has a buy signal, for what it's worth.  MFI is stubbornly at 50%.  Buying momentum is at equilibrium.  This might be a frustrating time for potential buyers and sellers alike.  I am still queueing to accumulate at 15.5c.

Portfolio strategy.

Sunday, January 31, 2010

Done my weekly reading of The EDGE.  Goola Warden, Darryl Guppy and Michael Kahn are people whose articles I enjoy reading.  I have also learned a lot about TA from their writings.  In this issue of The EDGE, all of them have gone decidedly bearish about the prospects of global stock markets.  My own reading of the STI shows that the uptrend is still intact but the index is in a rather dicey situation should it not confirm the reversal signal seen in the last session.  With the US market closing in the red in the last session, the STI has to look to the SSE and HSI for leadership and we might agree that it is not all that promising.

So, what are we to do?  I have taken much of my profit off the table three weeks ago.  I have been averaging back into the market as prices came down to supports.  Looking ahead, I plan to continue accumulating high yielding counters at attractive valuations.  This remains the core of my investment strategy as my long term aim is to acquire a reliable passive income stream from high yields.

Which high yields would I want to accumulate?  After all, you might remember that I revealed a long list of high yields which I currently own.  Please see:  Grow your wealth and beat inflation.

One high yield which I have been constantly accumulating and will continue to do so is Saizen REIT.  Amongst the S-REITs, it is hard to find another REIT with as compelling a valuation. Having said that, there are a few others which I am keen on and I will keep an eye on.  They are AIMS AMP Capital Industrial REIT, LMIR and Suntec REIT.  Any decline in unit prices of these REITs will be an opportunity for me to further secure yields of >10% p.a. from various sources.

I would be looking out for opportunities to partially divest my remaining investment in Healthway Medical as I stated in a comment to this post: Healthway Medical: Dwindling volume.  I said: "Healthway Medical does look like it is suffering from fatigue of late. With more shares being issued and with the lower target price by DMG, it is probably difficult for the counter to form a new high anytime soon."

I will also be keeping an eye on Golden Agriculture.  If the 100dMA support at 48c breaks, it is very bearish.  Any move up towards the 20dMA at 56c in the near future provides an opportunity to reduce exposure.

I still like the long term fundamentals of Healthway Medical and Golden Agriculture.  However, as Darryl Guppy expressed so well: "Markets are efficient at recording the emotional behaviour of participants.  They are less efficient at reflecting the economic fundamentals."  I have also said that it is important to know when to buy but it is also important to know when to sell: Rationale for partial divestment.

Good luck in the new week!


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