Capitaland: More downside?

A low volume pullback would suggest that weak holders were selling. A high volume sell down is something else and investors should turn cautious. The volume which accompanied the formation of a long black candle today is the highest since 11 Feb 2011. The bearish tide is very strong.

My purchases made on 12 April at the prices of $3.38 and $3.36, above the 50dMA, are now in the red.  Will I buy more to average down my price? Capitaland's NAV/share is about $3.30. At today's closing price of $3.17, it is trading at a discount to NAV. Fundamentally, Capitaland is a strong company. However, it does not mean that its share price cannot go lower from here.

I have said this before and I will say it again as a reminder to myself: FA is about value and TA is about price.

The reverse head and shoulders did not give rise to a powerful upward surge in share price. The rising price was stopped by the declining 100dMA, trapped for many sessions before finally breaking the support provided by the 50dMA. Any trader worth his salt would have cut loss then. However, I am a bad trader and held on. As price declined, volume seemed to reduce which was heartening. Of course, today's explosive volume as price plunged destroyed that illusion.

All the MAs are declining and the 20dMA seems ready to form a dead cross with the 50dMA. -DI has been rising and, with it, the ADX. The downward movement in price seems to be gathering momentum. Further downside cannot be discounted and if price were to decline further, supports are at $3.11 and $3.08. I will wait for the dust to settle before deciding on my next move.

CapitaLand down on policy tightening worries
Wednesday, 11 May 2011

© 2011 - The Edge Singapore

Sabana REIT: Bought more at 91.5c.

91.5c. Does this price sound familiar? It was the price I bought into Cache Logistics Trust some weeks back. See blog post here.

Today, I bought more units of Sabana REIT at 91.5c. The REIT's unit price touched a low of 91c after going XD before closing at 91.5c, forming a black hammer in the process. Buying at 91.5c XD is similar to buying at 94.5c CD (which, incidentally, was the highest price I paid although most of my purchases were made between 92.5c to 93.5c). Similar? That's because the REIT's maiden DPU was 3.04c.

I must be feeling quite bullish about the REIT if I bought more at 91.5c today. Well, feelings of bullishness aside, I feel that this REIT is a rather safe passive income generator at this level. NAV/unit of 98c means that the REIT is now trading at a 6.6% discount to NAV. Gearing level is conservative at 24.9%. Interest cover ratio is 7.9x. Annualised DPU of about 8.81c would mean a distribution yield of 9.63% at 91.5c per unit.

Some people asked me if Sabana REIT is still a good investment even though it has gone XD. Well, look at the numbers I have laid out above. What do you think? As an investment for income, I cannot find any big negatives with the REIT at this point in time. Indeed, I expect its performance over the next two years to be rather stable, everything else remaining equal, and that's a primary objective when we are investing for income.

Technically, the price gapping down today and going beyond the lower Bollinger band is very bearish. Notice, however, that the volume is the lowest in the last five sessions. This suggests that there is little selling pressure even though the REIT is trading XD, well, not at the current price level anyway. 91.5c is also supported by the 161.8% Fibo line while 91c is immediate support.

Could price weaken further? Although I do not think it probable, yes, possibly. Placing the 100% Fibo line at today's low of 91c gives us an idea of where the next downside supports might be found. 90c, 89.5c, 89c and 88c. At 88c, the distribution yield would be about 10%.

If price were to weaken further, I would not bother guessing why people were selling down the REIT. I would simply march in and buy more.

NOL: A favourable wind is blowing.

NOL was a star performer today as its share price advanced 9c or 4.9% to close at $1.93, the day's high. A long wickless white candle was formed on the back of very high volume. This bodes well for the bulls and we could see the company's share price pushing higher tomorrow.

Higher up, much stronger resistance would be felt in a band from $1.98 to $2.00.  The trendline resistance also approximates $2.00. To go higher, the downtrend that started on 5 January has to be broken decisively. Could it happen this week?

The MACD has formed another higher low although the counter's share price formed a lower low. Positive divergence? Yes, looks like it. So, to take advantage of the positive divergence, buy and hold?

Well, I am somewhat apprehensive as NOL is in a multi-month downtrend and conventional wisdom which believes that the trend is our friend would say that we sell at resistance in a downtrend. It might be prudent to err on the side of caution. When in doubt, I divest partially.

NOL up on improving container sector outlook. NOL said last week it carried 12% more cargo in the four weeks to April 8 from a year ago, helped by higher traffic on intra-Asia and Asia-Europe routes.
Monday, 09 May 2011

© 2011 - The Edge Singapore

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Golden Agriculture: A picture says a thousand words.

A picture says a thousand words and that is really the appeal of technical analysis. This is, of course, if we are able to interpret the picture and sort out the signs.

I keep saying that the long term uptrend of Golden Agriculture is intact. Well, it is still intact. Take a look at the weekly chart here, starting from the week of 27 Oct 2008:

The counter's share price is retesting the long term trendline support which coincides with the rising 50wMA. Since the week of 17 Jan 2011, trading volume has declined. The black candles formed in the last three weeks have relatively short bodies, suggesting a tight range of prices.

The spring is coiling up and tension is building. Immediate upside target is 70.5c while a failure of the trendline support could see price going down to 57c which is where we find the rising 100wMA.

General Election results and the stock market.

I have kept politics out of my blog. It is an investment and personal finance blog. However, some have asked me what I think the General Election results would mean for Singapore and for the stock market.  Well, I guess we could talk about this while having "tea".

The PAP had the slimmest of margins since 1963, capturing 60.1% of valid votes, but they did manage to retain 81 out of the 87 seats in Parliament. The loss of the Aljunied GRC helmed by BG George Yeo who was our Minister for Foreign Affairs is perhaps the biggest setback for the PAP. However, politics aside, to me at least, losing Aljunied GRC would not derail Singapore's economy. Nor would it affect the local stock market adversely.

There is no doubt in my mind that Singapore's economic miracle since independence is the result of the astute leadership by the PAP and their founding members like Mr. Lee Kuan Yew and Dr. Goh Keng Swee. Over the decades, the economy strengthened, the country prospered and the people's lives improved under the leadership of Mr. Goh Chok Tong and Mr. Lee Hsien Loong in their terms as Prime Ministers. Things have definitely changed for the better over the decades but, in the last couple of years, a mood of discontent became more evident.

This General Election was a very emotional one and the electorate have sent a strong signal to the PAP that not everything is well.  When did things start to change? If the election had taken place right after the recovery from the global financial crisis in 2009, I am willing to hazard a guess that the PAP would have done better, being responsible for myriad ideas like the Job Credits which helped to keep hundreds of thousands of Singaporeans employed during the depths of the crisis. Human beings have a short memory and a focus on the immediate is quite normal.

So, has the PAP fallen short? I would say that their position weakened as they did not keep up with the changes on the ground. In so many aspects of life, change is the only constant. Ignore change and we become irrelevant. It is either we change together and stay relevant or we get left behind. I certainly hope that the PAP learn from this experience and emerge a stronger and more sensitive government.

We are investors and, naturally, we are concerned about the economy and continuing prosperity of the country. We have vested interests. The PAP has been good for the economy of Singapore. Will the investment community lose confidence in the Singapore economy because the PAP has lost a GRC? I do not think so.

The PAP's leadership over the decades transformed Singapore into a small economic powerhouse but Singapore's domestic economy remains very small (yes, even with five million people living and working here) and we are more affected by externalities. Our economy remains very open and vulnerable to externalities. If the stock market should suffer a decline, more likely than not, it would be because of some global shifts in liquidity or fundamentals. Soon, GE 2011 would just be a memory and I would not dwell on or read too much into the results.

CapitaMalls Asia: A reversal signal.

When price touched a high of $2.05 per share on 9 Feb 2011 and declined to a low of $1.57 on 15 Mar 2011, the OBV declined rather sharply as well, suggesting heavy distribution.

However, as price declined from a high of $1.92 on 11 April 2011 to touch a low of $1.66 in the last session on 6 May 2011, the OBV declined much lesser and, in fact, the OBV is much higher compared to where it was on 9 Feb 2011. This, to me, suggests that some accumulation is happening and that smart money could have returned to the counter, quietly. In the last session, price closed at $1.69, forming a white spinning top, a reversal signal. It remains to be seen if the signal is a valid one.

All the momentum oscillators are suggesting that the counter is oversold. The MACD is declining in negative territory but we could see a rebound in price. In the event a rebound takes place, expect initial resistance at $1.75 and stronger resistance at $1.83 which is provided by the declining 100dMA.

Whether the 100dMA could be overcome is crucial in determining if the stock could move higher in price. That's for another blog post on another day, perhaps.

NOL: Fundamentals and technicals.

NOL's decline in price came to a halt as news of falling price of crude oil gave a boost to the share prices of transportation companies. NOL should also benefit in time from the "tight capacity of container boxes as well as almost full deployment of container ships (which) would make freight rates very sensitive to any upturn in demand." Could we be seeing the early days of a reversal?

Citi cuts Neptune Orient target price, keeps buy
Friday, 06 May 2011

© 2011 - The Edge Singapore

Well, I bought into NOL at $1.95 and $1.90, believing that it was range bound with support at $1.90. We know what happened after the counter went XD. Price went on to touch a low of $1.80 two sessions ago, confirming that the counter is still in a downtrend. If price were to rise from here, where would the resistance levels be?

Employing a Fibo fan with high at $2.40 (5 Jan 11) and the low at $1.90 (17 Mar 11), it is clear to see that the 38.2% Fibo fan line provides a credible resistance but it was overcome on a few occasions. Therefore, I would expect the 50% Fibo fan line which coincides with the declining 50dMA to provide a stronger resistance if tested. The 61.8% Fibo fan line coincides with the confluence of 100d and 200d MAs and this could provide the ultimate limit to any upward movement in share price resulting from any possible bullish sentiments.

Although the share price has been declining, the MACD has not formed a lower low. Indeed a higher low looks likely. A higher share price with the MACD turning up could mean a test of those resistance levels identified. Good luck to fellow shareholders.

Sabana REIT: Bought more at 93.5c.

Today, I increased my investment in Sabana REIT once more. Price? 93.5c /unit. I still have the same question and that is why are people selling at this level?

I have a faint suspicion that a former substantial shareholder, Moore Capital Advisors, who last made a divestment which brought their investment in the REIT to less than 5% of the total units in issue back in December 2010, are still divesting. Of course, they no longer need to declare any sale of units although they still had some 29,752 lots on hand since that divestment in December 2010.

Why am I bullish on the REIT? The REIT is still trading CD with a DPU of 3.04c. Granted that this is an extraordinary payout as it represents distributable income from the REIT's listing in November 2010 to end March 2011. Quarterly, expect a DPU of about 2.2c as the norm. So, the distribution yield is about 9.4% at a unit price of 93.5c.

There are certain arguments that the REIT has a weak sponsor, an untested management and that the quality of its assets is questionable. However, looking at the strength of its balance sheet, its low gearing of 24.9%, its NAV/unit of 98c and its interest cover ratio of 7.9x, it would have to take a very incompetent manager to foul things up. Well, I can only hope that the CEO, Mr Kevin Xayaraj, is a competent one. He was with Ascendas Land (Singapore) Pte Ltd for two years in 2004 to 2005 before moving on to Cambridge Industrial Property Management Pte. Ltd. where he stayed till August 2009.

It is reassuring that the manager's performance fee is only payable if the REIT generates an annual growth in DPU of at least 10% over the previous financial year. If the DPU does not grow 10%, no performance fee. If the manager makes income accretive acquisitions which are financed through debt, DPU is likely to grow as well. However, if such acquisitions are financed through equity fund raising, the manager will have to be very careful to ensure that DPU does not suffer a dilution. How will the manager perform? This is a wild card, isn't it?

As for the quality of assets, DTZ revealed that Sabana REIT has some high quality assets such as Pantech 21 (72 years remaining) and Geo-Tele building (45 years remaining). In fact, 44% of the REIT's portfolio is made up of high-tech industrial buildings when compared to the number of warehousing buildings. The land leases on the REIT's high-tech industrial buildings do not start expiring until year 2051.

Investing in anything has attendant risks. Investing in Sabana REIT at its IPO price of S$1.05/unit might not have been the most prudent thing to do. With smallish REITs, there were better yielding alternatives out there. However, at 93.5c/unit, the risk premium has been watered down significantly. Could I be totally wrong about this? I think it unlikely but the possibility exists. After all, we can and should reduce risk in investments. It is near impossible to eliminate risk.

Looking at the chart, the lowest the REIT's unit price has been to was 92c while 93c can be said to be a rather strong, many times tested immediate support. Upon XD next Tuesday, we would probably see the REIT's unit price weaken.

Could we see 92c tested again? Possibly. Could we see price form a new low? Why not? How low? I do not know. However, I do know that if it gets much lower as to give a distribution yield of 10%, I am buying many more units. Unit price would have to be about 88c to give that kind of yield.