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.