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Hyflux and Sound Global.

Thursday, December 1, 2011

Regular readers know that I invested heavily in Hyflux Water Trust during the last crisis. I was drawn towards its very high distribution yield of some 17% and zero gearing at one stage as well as its very stable businesses. The Trust helped to grow my wealth significantly.


I continue to like the water business and believe that the world will continue to need solutions to water problems. In an earlier blog post, I said I would like to become an investor in Sound Global (the former E-pure) once again. Of course, I would also be interested in Hyflux. It is just a matter of finding an entry price I would be comfortable with.

If we look at Hyflux's chart, the downtrend is definitely intact. What interests me is the higher low on the MACD as its price formed a lower low. Yes, we have a positive divergence which is a reversal signal. What got me even more interested is that the white hammer formed yesterday was confirmed today as price opened and closed higher on the back of much greater volume.


I certainly do not know if Hyflux's share price has bottomed. It might be bottoming but we cannot call a bottom until it has formed. However, I might initiate a long position as a hedge and will not add to this initial position unless a clearer picture is seen.

Sound Global, on the other hand, is exhibiting more strength although it has come up against a significant resistance, it would seem.



As its downtrend is arguably intact, I am wary about initiating a long position when price looks like it could be testing the immediate resistance. So, for Sound Global, I will wait a bit more.

21 comments:

FoodieFC said...

I have been watching Hyflux for the past 2 weeks! I have really no idea what caused this down trend. Do you? Seems to be no reason. yet it got sold down so badly.

AK71 said...

Hi FoodieFC,

People are worried about Hyflux's balance sheet, I believe.

See:
Hyflux: 6% perpetual Class A preference shares.

Hyflux: $800 million bridge loan.

Hyflux secures funds of $150m.

Ray said...

Hi AK,

hope you havent gone long on this.
After your post, I went to look and find the price going slightly bearish again this morning.

This is one case in point why I said before TA predict the impact FA can bring. This morning stock is bearish again because of concerns about China economy as well as USA's job stats. Still alot of noises coming from the big economies which is why TA may not be as reliable (IMHO) at the moment.

AK71 said...

Hi Ray,

I usually only look at charts at the end of the day. In the case of Hyflux, it is clear that the reversal signal (the white hammer) was confirmed yesterday. The confirmation was on the back of very high volume to boot. This plus the positive divergence with the MACD suggest that price could have found a floor, if not the bottom.

So, TA wise, things look pretty promising on the daily chart. However, like I always say, TA is about probability and not certainty.

Therefore, any long position I initiate would be a smallish hedge, nothing more. This is especially when the MACD on the weekly chart is still a straight line down. ;)

Singapore Man Of Leisure said...

Send in the scouting parting. Look see look see.

Then the advance party.

Then the main body.

Then the support units. (That's me! I ammo storeman in NS. Lucky or what!? The warriors in front fight first)

TA plus money management ;)

AK71 said...

Hi SMOL,

A very profound comment. Forgive me but this one is lost on me. :(

Could you explain from another angle? Thanks. :)

Affordable items said...

hi ak71. is there any coy that is like hyflux? i believe coy linking to water has more potential.

Ray said...

Hi AK,

From the end of day chart, guess you're right! again! :)

Anyway,read your old posts on Hyflux. With the heavy borrowing and insider selling, what makes you comfy with its balance sheets?

Can share?
Thanks

Singapore Man Of Leisure said...

Oops!

I thought that's what you do. Sorli sorli.

I am impressed with the way you build up your core position in a stock.

You don't buy 100% in one go. You buy a bit. Then wait and see. If you like what you see, you buy more.

If you don't like, you have no problem taking quick profits or losses.

When I see a technique I like, I have to internalise it in a way that makes it easier for me to remember and understand. Apology for "stealing" your technique and making my own spin on it :)

To me, TA is like army scouting intelligence. It merely says I suspect the coast is clear.

But without actual boots on the ground, we won't know if it's an enemy ambush uphead!

LOL!

AK71 said...

Hi Affordable items,

I am a creature of habit. I am familiar with Hyflux and Sound Global. So, I look at these.

However, I am sure there are other companies out there dealing with water too. You just have to do a search. Sinomem comes to mind, for example.

AK71 said...

Hi Ray,

Today, my buy order at $1.20 for Hyflux was filled. So, I am a shareholder of Hyflux now after many years of waiting. :)

I will tell you that the decision to buy into Hyflux at this point in time is informed by TA. FA is a very vague "I like its business". ;)

From its weekly chart, I suspect there could be more weakness. However, from its daily chart, we could expect a bounce. Whether it happens or not, only time can tell.

So, I am likely to divest at least partially for a quick gain at resistance if price should strengthen from here. Reading tea leaves? Guilty as charged. ;p

AK71 said...

Hi SMOL,

Wow! I like the way you put it. Army talk! Hahaha.. :)

Well, I employ FA and TA either together or singly in my investment decisions. The best decisions have been those which saw agreement between both FA and TA. This decision to enter Hyflux in the current timeframe is heavy on TA.

Hence, the likelihood that I could take quick profit and beat a hasty retreat if the opportunity should present itself.

For stocks which have passed more thorough FA, I would be more reluctant to take quick profits. I would also be more reluctant to book losses. The losses would likely be temporary and the weakness could even be a whipsaw. This is where FA interferes with conventional wisdom in TA.

Of course, it could backfire too as in the case with Saizen REIT. Ah, the Lord giveth and the Lord taketh. I was given two opportunities over a 12 months period to make a lot of money but I did not act on them, believing price should be higher. A thorough FA led me to discount the chances of natural disasters.

So, marrying FA and TA is not a clear cut matter. How much of FA and how much of TA goes into each decision? It is very subjective and if we think we can keep our emotions and judgements out, think again. With pure TA, it is easier.

There I go rambling. This is not a ploy to confuse you into abandoning plans to "steal" my technique. Haha.. It is just to show you that I do not have any technique per se.

My methods remain quite "fluid" which is a nice way of saying they are "uncertain". ;p

Ray said...

Hmmm AK, this is not quite like you.
I remember you said before you only do TA on companies that you are happy FA wise.
Hyflux FA seem to be rather bad.
Business model sounds good, everyone need water... but if the balance sheet is bad, then business model alone is not a safe bet, dont u think?

Sorry if I'm a wet blanket.

AK71 said...

Hi Ray,

Some people think that they got me all figured out. Some people think that I am consistent in my methods. Well, I guess they could be disappointed, sometimes. ;)

Ray said...

Haha, the same can be said of Warren Buffett. So you're on the right track ;)

AK71 said...

Hi Ray,

Oh my. Definitely not the same league. Haha.. In my dreams, maybe. ;p

Ah John said...

hi AK,

I just read Hyflux annual report, still don't understand how they make money. Is build the plant and manage to get income for selling water daily? If so, the revenue should be increased steady, as a waster or electric supplier. But the number doesn't tell so, especially revenue from China shrinked since 2008.

Do you know how they make money?

Ah John said...

why the revenue drops 25% at 2011 Q3?

AK71 said...

Hi Ah John,

I believe Hyflux makes money by clinching contracts to build, operate and transfer plants. Cash starts flowing in once the plants are completed.

At this point in time, my decision to initiate a long position in the company is heavy on TA. I have very little in terms of FA to back such a decision as the company's balance sheet is rather weak now, to put it diplomatically.

Will the management be able to pull it off this time round?

Ray said...

Purist of TA and Swing Traders don't look at stock FA. Some don't even care what the stocks' names are! In fact they have filtering softwares that search for signs of stocks that are in the "traders' zone". So if from TA p.o.v, you decided its time to long then in theory, you neednt care abt the FA :) good luck to all those longing Hyflux. :)

AK71 said...

Hi Ray,

TA is about probabilities. So, luck is definitely an important element here. Thank you. :)

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