Crude oil to hit US$100

I've mentioned before that Darryl Guppy predicted that crude oil will hit US$100 after Christmas based on TA. Now, from a FA perspective, John Kilduff, co-chief investment officer of Round Earth Capital said on 24 Dec 09 that:

"I'm worried about several geopolitical fronts out there that are going to stoke crude oil prices. I think first above $85 real quickly [in 2010], and then I see oil possibly at $100 by the first half of the year."

A strong outlook for crude oil would limit any downside in the price of crude palm oil. I continue to believe that there is limited downside (support is at 46c) for Golden Agriculture as it tries to break resistance at 50c.

Separately, this is taken from an article in Business Times (Malaysia), 25 Dec 09,
Palm oil prices up after 3 straight days of losses

Malaysian crude palm oil futures jumped 2.2 percent on Thursday, after three consecutive days of declines, as higher crude oil prices and a weaker U.S. dollar lifted the market.

The benchmark March contract on the Bursa Malaysia Derivatives Exchange settled up RM54 to RM2,554 per tonne after going as high as RM2,573.

“Crude oil is bound to touch 80, sooner or later, and the palm oil traders left in the market are speculating on this,” said a dealer with a foreign commodities brokerage. “We are still quite strong on the demand-supply scenario.”

Expectations of a stock drawdown due to the end of the high production season supported the market. Traders expect stocks to fall about 13 percent to 1.68 million tonnes in December compared with the previous month.

I would accumulate Golden Agriculture on weakness, if any.

Crude oil at US$78.05

Crude oil closed at US$78.05 on Christmas Eve. With this being an extremely cold winter in the northern hemisphere, the price of crude oil might go higher. This would make Darryl Guppy's prediction of a post Christmas high of US$100 closer to reality.

If crude oil breaks the recent high of US$83 achieved on 21 Oct this year, we could expect crude palm oil to follow closely and appreciate in price as well. That would be good news for counters like Golden Agriculture.

Technically, crude oil has been in a correction since peaking on 21 Oct. The short term trendline from 21 Oct has been tested 3 times on 4 Nov, 18 Nov and 1 Dec. Price took a plunge from there and only bottomed on 14 Dec. Closing at US$78.05 means that oil is still in a correction stage. We want to see crude oil closing at US$79.00 or higher in the next few sessions to see this broken. We want to see confirmation in time with price action forming higher lows and higher highs.

The candlesticks formed in the last three sessions for crude oil look like a three white soldiers formation. If the formation follows through, oil is set to move higher sooner rather than later. The longer term trend for crude oil is still up.

Three portfolios and three counters: future gains and passive income

I've been investing in the stockmarket since my university days when I was basically clueless and had some silly notions about investments. Today, I am less clueless and less silly but I'm still human. Emotions, they make us human and, yes, fallible.

To make it easier for me to manage my investment portfolio, I've divided the counters into 3 sub-portfolios:


1. Rubbish - This portfolio is similar to what Citibank did by taking out their toxic and non-performing assets and putting them in a "bad" bank. I've made many mistakes in investments and this portfolio holds my mistakes. Some may ask why I do not just close this portfolio and not look at these counters anymore. Well, human beings are forgetful. I keep this portfolio to remind myself of my follies and, hopefully, will not make the same mistakes. Examples in this portfolio: MPSF and Ferrochina.

2. Alive & Kicking - This portfolio holds shares of companies which were bought before the crash. The businesses are sound and ongoing. They also pay good and consistent dividends. In a bear market, none is spared. Their prices suffered along with the rest when global markets crashed. They have now recovered substantially. Examples in this portfolio: SPH and First REIT.

3. Current - This portfolio holds shares of companies which were bought after October 2008. I selected counters such as Hyflux Water Trust and First REIT based on their defensive business models and high dividend payouts and bought at very depressed prices. Some such as Epure which I've divested totally have been extremely rewarding. I have counters in this portfolio which I will no longer trade but hold for consistent dividend payouts.

Three counters which I will continue to actively monitor are:

a. A growth counter: Healthway Medical - Currently at 12c. In comparison to its peers, it is inexpensive whether you use PE or P/B ratios. If we look at their results in the last quarter, they outperformed Raffles Medical Group in terms of percentage growth. I continue to believe that a price of 17c would be barely fair. Over the next 12 months, I would be surprised if investors in this counter do not make a handsome profit. A strong growth story makes this a buy and hold counter for me. Healthway Medical: Growing a defensive business

b. A cyclical counter: Golden Agriculture - 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. Charts for Golden Agriculture

c. A yield counter: Saizen REIT - Currently at 15c. I thought I would not be able to find another severely undervalued REIT in Singapore after the REIT sector ran up strongly in the last 9 months. I've written quite a bit about this in another entry and so I shall not elaborate here. I am accumulating units in this REIT to form the bulk of my future passive income generation. This is another buy and hold counter for me. Passive income with high yields: Saizen REIT

Chart reading: Golden Agriculture

Crude Palm Oil (CPO) has been forming higher lows in the last 12 months. On 16 Dec, it successfully tested the neckline of a double bottom formation. The new support for CPO is established at RM2,480 to RM2,510. A retest of the 12 months high of RM2,790 is likely in the next few months.

Golden Agri's chart has a pattern which looks like a mini ascending triangle (on diminishing volume). 50c remains the resistance to watch. The rising 20dMA has been compromised twice this week. Rising 50dMA and 100dMA are at 46c. These should provide strong support. I am still long this counter but might consider partial divestment if it hits 50c. Charts for Golden Agriculture

Why Golden Agriculture?

On 21 Nov 09, crude palm oil's (CPO's) price closed at RM2,419, up RM48 (2.02%), effectively breaking out of a 2 year down trendline which started after price peaked in early 2008 at RM4,330. This down trendline was tested twice earlier this year but not broken.

We are seeing this breakout translate into some strength in the price of CPO producers like Golden Agriculture. I believe that this is something that will continue into the new year and the Chinese New Year when CPO might retest its 2009 peak of RM2,790.

CPO price has been going up due to increased buying in Europe, India and China. The bad weather has caused production to decline marginally and inventory is being drawn down. Domestic demand in Indonesia remains strong. It is a daily necessity that doubles up as a biofuel.

I continue to believe in the future of Crude Oil and that will have a direct impact on the price of CPO. Darryl Guppy predicts that Crude Oil will hit US$100 after Christmas from a TA perspective. I have read elsewhere predictions of between US$85 to US$90 a barrel.

Golden Agriculture remains the cheapest CPO counter, no matter which parameter you use as a measurement. It is also the most levered to CPO price. I remain confident of its future in the next 12 months. This is one counter that I can foresee myself trading for the next 12 months