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First REIT: Partial divestment?

Sunday, May 29, 2011

I like First REIT and it remains one of my largest investments. I like the low gearing and high yield. I like the strength of its sponsor and what it has planned for the future. In a blog post, I said fair value for First REIT is at 80c per unit. I still believe it to be so. In fact, I bought more at 73c and 73.5c in early April 2011.

Today, over lunch with some friends, there was mention of a bearish divergence in First REIT's chart. I decided that this bears looking into since LP, the blogmaster of Bully the Bear, who is definitely more accomplished in TA than I am recently divested some units at 76.5c. Indeed, in my blog post of 11 April 2011, I wondered whether First REIT could retest 77c, the high of January 2011 and if there is a bearish divergence, a partial divestment at 77c might not be a bad idea.

Looking at the daily chart, we see the declining 200dMA approximating 80c, a happy coincidence with my perceived fair value of the REIT per unit. However, the high of 77c in January 2011 is obviously a major resistance to overcome before a test of 80c is possible.

Price action is pushing the upper Bollinger and the momentum oscillators are bordering overbought. It seems that there is positive momentum and support. However, looking at the Chaikin Money Flow (CMF), we get a hint of possible weakness to come.

The CMF is an oscillator that measures buying and selling pressure over a period of time. The CMF in this case has been negative and getting more so as price moved higher. This gives rise to a bearish divergence. Buying pressure has reduced. It could be, therefore, prudent to divest partially.

As usual, TA is about probability. If price were to break resistance at 77c and move higher, I expect strong resistance at 80c.  If price were to move lower, I expect strong support in the region of 74c. So, a partial divestment at 77c could mean possibly losing a further 3c gain or being able to buy back at 3c lower.

Related post:
First REIT: XR and fair value.
First REIT: Bought more at 73c.
First REIT: Bought more at 73.5c.


Derek said...

Hi AK,

So if you divest from First REIT, are you intending to buy any other stocks, consolidate cash or wait to buy back at a lower price?

Can also consider when their next dividend payout is. If you get the timing right, you could sell high, buy low and still get the dividends.


AK71 said...

Hi Derek,

It would probably be a partial divestment if it should happen at all. What would I do with the freed funds? Keep a lookout for any investment opportunities. It could take various forms and I would keep my options open. :)

Derek said...

Hi AK,

That's everyone challenge unless u are bearish like me. Luckily u are not a fund manager so there is no need to be always fully invested.

Hee.. u could use the extra money for setting up the forum.


Anonymous said...

Looking forward to your next insight of where you have recycled the funds.

I wished for something of a nice yield (>6%) and with some capital appreciation.

Huat ah...


AK71 said...

Hi Derek,

I am optimistic that First REIT would continue to do well and if its price were to retrace to test supports, I would buy more.

Currently, its price is testing resistance and selling at resistance seems like a good idea. ;)

AK71 said...

Hi SnOOpy168,

At the moment, no new ideas. In terms of fundamentals and technicals, my top pick for an undervalued REIT is still Sabana REIT.

First REIT, I continue to like the fundamentals. So, technically, I would accumulate at supports. :)

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