Golden Agriculture: A tale of two crudes

I was watching Bloomberg on TV while vacationing and some technical analyst said that US$80 for crude oil is in the bag and would happen before the week ends. There is also news out of Venezuela that Chavez might have to do something drastic to handle a crisis in the country and that might send crude oil up to US$100! That would make Darryl Guppy happy.

Crude oil moved to the lowest in 2010 on Tuesday, 19 Jan, while crude palm oil trades at the lowest level in 8 weeks today at RM2,444, down RM46 or 1.85%. Short term weakness providing a chance to accumulate? Maybe.

Technically, the 50% Fibo line at 56.5c seems to be providing near term support. If this counter is also doing a correction using time, it would be waiting for the 20dMA to catch up and the 20dMA would be at the 50% Fibo line sometime in the next couple of sessions. The 20dMA also coincides with an uptrend line and this reinforces the near term support.

If the 20dMA support gives way, Golden Agriculture should find support at 54.5c, the 38.2% Fibo line and at 54c which is a gap support.

Golden Agriculture: As per expectations

Golden Agriculture is behaving according to expectations. Closing at 57c on lower volume suggests that if the price retreats to the gap support at 54c, we should expect some strong support. Although if 54c gives way, the steeper orange color trendline would be violated and the gentler green color trendline would come into play. The latter, incidentally, coincides with the 38.2% Fibo line at 50.5c and should be a very strong support. I am going to accumulate on the way down at supports as the longer term fundamentals of crude palm oil remain intact.

Golden Agriculture: A choppy journey

My blog is pretty new but if you have been following my writings for at least the last week or so, you would know that I'm big on Golden Agriculture. In a post on Christmas Day, I wrote about three portfolios and three counters. One of the counters is Golden Agriculture which I called a cyclical counter as it is most sensitive of the three (the other two being Healthway Medical, a growth counter, and Saizen REIT, a yield counter) to economic cycles.

In that post, I said, "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."Three portfolios and three counters: future gains and passive income

If anyone who were not vested before had taken a position in Golden Agriculture then and sold in the last few sessions at resistance levels on the way up, say at 54c and 62c, he would have made a handsome profit. I know it reached a high of 65.5c but few would have been able to time it that well.

From my earlier chart reading, I said we might soon have a golden opportunity to load up on Golden Agriculture again with a correction in price as true to expectations, the ride is choppy.Golden Agriculture: A golden opportunity.

Crude oil has been trading lower and is down at US$79.13 as of now. Crude palm oil (CPO) has been down for a few sessions now, closing at RM2,510 in the last session, down 1.8%. There is concern that rising production and lower exports may drive stock levels to a new record high. Apparently, America is having a good harvest of soybeans as well which will help put a lid on the price of CPO as a greater availability of soyoil will dampen the demand for CPO.

With such negative newsflow and as Golden Agriculture is the most levered to the price of CPO amongst all the CPO companies listed in Singapore, it will bear the brunt of lowered expectations. With a bearish chart to boot, I would be surprised if Golden Agriculture does not test those support levels identified in my earlier posts.

Golden Agriculture: defying gravity

Golden Agriculture gapped up today to start the day at 62c which was the eventual target price and resistance level which I identified in earlier TA. A friend SMS me halfway through the morning to say, "Golden Agriculture is on drugs. It's 65c now!" Indeed, if Golden Agriculture took part in the Olympics, it might have tested positive for steroids as it reached a high of 65.5c and closed at 64.5c on increased volume! Most impressive.

In my previous TA on Golden Agriculture, I said that if 62c is taken out, the next target is 69c. If the price action stays as energetic as it did in the last few sessions, 69c might be reached sooner rather than later. However, it is likely to be a stronger resistance than 62c as it is not only a candlestick resistance/support level, it is also a 123.6% (in red) and a 161.8% Fibo line (in green). Drawing two sets of Fibo lines instead of one is what I do sometimes to find very strong resistance or support levels. MFI has pushed higher into the overbought territory and OBV shows continuing accumulation. With the MFI so overbought at 98%, I wonder how much longer can the gravity defying upmove continue. In keeping with my style which incorporates hedging, I am now 90% divested.

Golden Agriculture and Goldman Sachs

Crude palm oil (CPO) closed down RM4 today at RM2,626 (US$777). Nothing to shout about but Goldman Sachs raised its forecast for CPO prices today to US$850 this year and that prices may increase to US$950 next year. This gave some much needed fuel to push Golden Agriculture higher, reaching a high of 61c before closing at 60.5c. This move came on the back of respectably high volume and there is a chance that the target price of 62c might be attained in the next session. If 62c is taken out, the next eventual target is 69c which was a support level that broke in late July 08. As is my usual style, I would hedge by divesting partially at resistance and take some profit off the table.

Golden Agriculture still burning bright?

I have always disliked candles with long wicks on top. They suggest to me that the candles are burning up and that not much burning time is left. There is no gap up for Golden Agriculture today and price action formed a white candle with a wick on top which is almost as long as the body of the candle. There is increased trading volume today but that managed to push the price up to close only 1c higher. That the buying momentum is slowing down can be inferred from the levelling MFI, which is still firmly entrenched in the overbought region.

The price of crude palm oil (CPO) fell today to RM 2,630, down RM 72 or 2.66%. This likely dampened sentiments. A correction is expected after a strong run up but I feel that any correction should be short term in nature and presents opportunity for accumulation.

Eventual target price for Golden Agriculture remains at 62c but with weakened sentiments, flattening momentum and the many minor resistance levels along the way, it would be wise to reduce exposure as a hedge. Gap support is at 54c and this coincides with the 123.6% Fibo line.

Golden Agriculture impresses

For much of the day, it seemed as if Golden Agriculture would not be able to breach the 57c resistance level even though it gapped up, starting the day at 54.5c. Late day buying pushed the counter past 57c on high volume. Closing at 57.5c today with such strong white candlesticks and two gap ups in the two previous sessions is a bullish sign. MFI shows strong buying momentum but it has moved higher into overbought territory. OBV shows continuing accumulation. The eventual target is still at 62c and there are many minor resistance levels along the way. However, as is my usual style, I've hedged by selling 20% of my remaining position at 57c.

The price of crude palm oil (CPO) is probably supported by the bullish attitude the market has towards crude oil as oil futures have climbed for nine straight sessions, rallying about 12% so far. CPO is up RM20 to close at RM2,702 today. I continue to believe that a test of the previous high of RM2,790 will happen in the near future. Golden Agriculture will be a major beneficiary of higher CPO price.

Crude Oil: US$100 by mid 2010

More affirmation for Darryl Guppy's expectation of US$100 for crude oil through his TA - “As far as current demand trend shows, we will not be wrong to expect the price to rise as high $100 by mid 2010. We are not only seeing a better crude demand but also a better demand for the refined products,” said a Dubai-based trader. Dubai based traders reiterated that they expect the bull run to continue this year.

The comment comes in tandem with the views of Barclays Capital which said that crude demand will rise to a high of $100 a barrel this year, but will average at about $85 a barrel.Oil prices expected to hit $100 in 2010 say Dubai traders

What do we do? Well, this is good news for crude palm oil (CPO). Consider this: Crude oil: Update

Golden Agriculture - Confirmation

Opening with a gap up today confirmed the bullish signal seen on the weekly chart yesterday which was the price closing above resistance provided by the descending 100wMA at 51c. That cleared the way for the counter to move higher. It just needed some buying momentum which was amply provided today as volume quadrupled! This is a strong confirmation even though it is now met with resistance at 54c. This is a short term resistance provided by the 123.6% Fibo line and has a high chance of being overcome in the next session as we have a wickless white candle today. Initial target is at 57c as provided by the 150% Fibo line. Eventual target remains at 62c as posited on 29 Dec 09. 29 Dec 09: Golden Agriculture

Fundamentally, the higher prices of soyoil and crude oil are limiting the downside of crude palm oil (CPO). With the Chinese New Year upcoming next month, demand is not expected to decline anytime soon. For more reasons why CPO is expected to do better in time, please refer to an earlier article in this blog: Crude Palm Oil: Update

Golden Agriculture: slow and steady?

Golden agriculture closed above the declining 100wMA today on low volume. This being the weekly chart, we have to see if it stays above the 100wMA at the end of the week.

Even though there is a negative divergence between price and volume, I see limited downside with all the MAs rising and within close proximity of each other on the daily chart. However, without a surge in buying momentum or some positive catalyst, this counter might end up moving sideways for a while.

The FA for crude palm oil (CPO) and for Golden Agriculture remains positive. Patience will be rewarded.

Wilmar International

A friend mentioned that he would want to buy some shares of Wilmar International because he is confident that a listing of its China-related operations in Hong Kong will take place and it is just a matter of time.

Wilmar's valuation looks rich to me compared to other palm oil companies like Golden Agriculture. Of course, Wilmar is not a pure palm oil play but most people associate it with crude palm oil. The stock market is not the best place to find rational behaviour, we know.

Let's do a TA. Similar to Noble's chart, the 20wMA pulled away rapidly from the 100wMA. The 20wMA flattened two weeks ago. Compared to Golden Agriculture, which is testing resistance, Wilmar is hugging the flattening 20wMA for dear life as volumes dwindled. If I were to do some crystal ball gazing, this chart shows what Noble's chart might look like in future. For anyone who is thinking of entering, I see $5.54 or so as a fair entry point. It is about a 15% correction from the closing price of $6.43 and it is also a natural candlestick resistance and support level. This is another counter not for the faint hearted.

Crude Palm Oil: Update

On New Year's Eve, crude palm oil (CPO) closed up RM68 or 2.62% at RM2,663, a 7 month high. A retest of the high achieved this year at RM2,790 in May is on the cards.

CPO price is more likely to rise than fall in 2010 because of:

1. Demand from the world's top two consumers of vegetable oils: China and India. This demand is expected to increase as economies improve.

2. Bad weather in the Americas leading to lower soybean yields. This leads to lower soyoil production and higher prices. CPO is a substitute which is also less expensive.

3. Crude oil's price movement which is expected to continue rising as a cold winter increases demand for heating fuel in the short term and economies improve through 2010. CPO is an important source of biofuel and would most likely ride the wave up.
Why Golden Agriculture?

A new year and a new decade. Strategy for 2010.

Firstly, Happy New Year! It's the beginning of a new year and a new decade. Many countries in the world still have huge debts to deal with but let's hope things will be better the next 10 years.

This is extracted from the latest issue of NEWSWEEK magazine:

The American goverment may owe China US$799 billion but when it comes to foreign debt per capita, the US is relatively prudent. Which nationality has the highest foreign debt per capita?

Greeks US$ 27,746
Belgians US$ 27,023
Austrians US$ 26,502
Irish US$ 24,247
Norwegians US$ 21,402
Italians US$ 21,089
Dutch US$ 20,412
French US$ 18,946
Germans US$ 15,574
Finns US$ 13,617
Americans US$ 11,094
Danes US$ 9,410
Spaniards US$ 8,715
Swedes US$ 7,058
Brits US$ 6,526

Now, this puts things in perspective. Many countries are still not out of the woods. This gives the idea that we will see the global economy going into a tailspin again in the next 2 or 3 years greater credence. We are experiencing a cyclical bull in a secular bear market and not the beginnings of a secular bull market.

My strategy for 2010?

1. Gold
I am keeping an eye on the price of gold. If it goes closer to the psychologically important support level of US$1,000 an ounce, I will buy more physical gold as a long term hedge against inflation. Gold also acts as an insurance for my other investments. I buy physical gold from UOB.

2. Crude oil
I believe that demand for crude oil will continue to strengthen through 2010. However, it will not go up in a straight line. It will climb a wall of worries and we will have plenty of worries in 2010, no doubt. I would trade counters which are leveraged to the price of crude palm oil (CPO) as a proxy to the price movement of crude oil. I like Golden Agriculture.

3. Japan
As a contrarian play, Japan might outperform after almost two decades being in the doldrums. I like the Japanese Yen. I like Japanese real estate. I like Saizen REIT.

4. Indonesia
A strong emerging market, Indonesia did not suffer negative growth in 2009. I like LMIR and First REIT for the low gearings and the high yields.

5. Healthcare
There is greater demand for quality healthcare with increasing affluence and an ageing population in Singapore. I choose Healthway Medical.

6. Tourism
2010 will be a year where tourist arrivals balloon in Singapore with the completion of the two integrated resorts (IRs). Looking for value and high yield, I like Suntec REIT and SPH.

There are many other counters which will do well in 2010 but I will concentrate on these I've highlighted. The choices here are based on FA. Remember to use TA to identify entry and exit prices. Good luck in 2010.

Crude oil: Update

On Christmas Day, I said, "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."
Crude oil at US$78.05

Taken from: Oil hovers near $79 ahead of U.S. stock data
On Wednesday December 30, 2009, 7:29 am EST
By Emma Farge, REUTERS

Oil held near $79 on Wednesday as cold weather in the United States and an expected fall in both U.S. crude and distillate stocks including heating oil countered a firmer dollar, shoring up prices after a five-day rally.

U.S. crude for February delivery fell 13 cents to $78.74 a barrel by 1124 GMT (6:24 a.m. EST) in thin pre-holiday trade after touching a five-week high the previous day.

Taken from:
Oil-thirsty China to raise Kuwaiti imports by 50 pct
On Wednesday, December 30, 2009
By Chen Aizhu, REUTERS

BEIJING, Dec 30 - China has agreed to raise 2010 crude imports from Kuwait by 50 percent to about 240,000 barrels per day, trade sources told Reuters, with Chinese refiners set to to process at record rates as demand rebounds strongly.

The jump, which follows a one-third increase this year, comes after Iraq said it would more than double exports to the world's second-largest oil consumer and Saudi Arabia agreed to a 12 percent increase for 2010.

China's fuel demand is poised for an 8 percent expansion in 2010, more than double this year's 3 percent, Sinopec's president, Wang Tianpu, told Reuters last month, amid increasing signs of a strong economic recovery spurred by aggressive government spending.

I believe that the demand for crude oil will continue rising through 2010. Crude palm oil will most likely ride the wave up. Golden Agriculture is testing resistance. It's a matter of time before resistance is broken and a new high is made.
Crude oil to hit US$100

28 Dec 09: Saizen REIT, Golden Agriculture, Healthway Medical

Got more Saizen REIT today at 14.5c. >800 lots sell down today. Happened in the last few minutes of the trading day. Easily absorbed by the long buy queue. Counterparty: Kim Eng. I checked the last annual report. Kim Eng had 6.9m shares. Kim Eng could easily push the price down to 14c which would gel with the support seen in the daily chart. 14c? I'm buying more. Charts for Saizen REIT

Crude palm oil at RM 2,591, up RM 37 or 1.45%. I took some profit selling 20% of my current position in Golden Agriculture at 49.5c today. Not enough buyers to punch through 50c today. I will buy again if the price sinks to support and if the volume remains lacklustre, this might very well happen. Charts for Golden Agriculture

Healthway Medical makes me happy today. Yesterday, when I met up with friends for lunch, I repeated my believe that this is an investment that will do very well in time. So, I would continue to hold on to what I have and would buy more if the price weakens. Today, there were strong buy ups and its price closed at 13c, resisted by the rising 100dMA. Volume was a respectable 11.3m. OBV shows strong accumulation. All the momentum oscillators have turned up strongly. If the buying momentum continues in the next few sessions, a re-test of 14.5c, the brim of the previous cup formation, is on hand. Charts for Healthway Medical

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