A rebound or something more lasting?

A reader, CT, posed some questions in response to my post yesterday:

"i was wondering why u would reduce ur exposure at this point in Goldenagri and STI. do u think that there will be another correction soon? or are u just afraid of high volatility? could u expand ur thoughts on that? i ask because it seems to me that after this correction, the entire mkt seems poised for a steady uptick."

The STI broke the uptrend channel's support on 5 Feb before re-joining the channel on 9 Feb.  Of note is that the support broke on very high volume while rejoining the channel took place on relatively lower volume.  This is more bearish than bullish.  Incidentally, the support broke on the same day that the declining 20dMA formed a dead cross with the 50dMA.  The declining 20dMA seems poised to form another dead cross, this time with the 100dMA.  The 50dMA has stopped rising and is drifting lower.  The 200dMA is still rising strongly and should provide a stronger support at about 2600 points.  All these do not mean that the STI is going to crash to the 200dMA but it does indicate more weakness.

In the near term, the MFI is rising and this indicates positive buying momentum.  The MACD has risen above the signal line which is a positive as well.  There is probably some room to move up as the MFI is far from being overbought.  However, keep an eye on volume as without any meaningful expansion in trading volume, the upmove in the STI is likely to be no more than a technical rebound.

Yesterday, while chatting with LP in his blog, Bully the Bear, he mentioned that he is vested in SGX.  I took a quick look at the chart as I was curious and saw SGX clearly in a downtrending channel.  In such a situation, the probability of a counter forming lower highs and lower lows is higher.  It would be prudent to reduce exposure if the price moves to retest the channel resistance.  I mention this as a quick reminder becaue if the charts of counters you are vested in show a similar trending, you might want take this into consideration.

As for Golden Agriculture, I am just doing what I have always done.  As price moves up, I divest gradually at every resistance level.  I hedge against the risk of any sudden reversal in such an instance but I will also never maximise my returns.  Given that the market usually lapses into a stupor after the Chinese New Year period, I am not optimistic that the recent high of 65.5c could be bested.  If you look at the chart, 62c was a resistance level in August 2008 which sealed the fate of this counter as the price plunged after that.  That it was punctured for a couple of days last month in January was a positive but it happened too soon.  59c is a many times tested resistance in recent memory and is psychologically more important.  Hence, I have chosen it as a more realistic target price this time round.  The important thing is to make money.  Greed is not a bad thing but beyond a point, it is.

TA cannot predict what will happen for sure in future.  It simply gives us clues and we can choose to be conservative and wait for confirmation before acting or hedge to reduce risk (which could also reduce rewards).  I have a preference for hedging as I am not a pure TA practitioner.

A very quick look

Very, very tired from a long journey back to Singapore.  Need to sleep.  Yawn.  I have just replied to four comments from readers and I could barely keep my eyes open now.  So, this is going to be a very quick look.

STI is up 35 points on respectable volume.  I expect the index to continue gaining for a bit more.  This is probably a good chance for stale bulls to reduce exposure.  I wouldn't be adding to my positions except for those in counters which remain promising (read limited downside and good upside potential).

Golden Agriculture is pushing higher as expected.  I have divested some as a hedge, gaining 10% in the process.  If you followed my posts on this counter, you would remember that I have a target price of 59c for the upmove this time round.  This remains unchanged.  MFI has just risen above 50% and is a long way from being overbought.

Healthway Medical confirmed the buy signal we saw on the MACD in the last trading session of the Year of the Ox.  You might remember we talked about this in my last post on Healthway Medical as well.  Immediate resistance is at 15.5c, the 20dMA.  Continuing upmove in price could see the XR high of 18.5c tested once more.  Volume needs to expand more meaningfully for any upmove to have a more lasting impact.

Saizen REIT has no movement and I hope to collect more at 15.5c thereabouts.  This REIT, I believe, is a sleeping giant.

OK, would like to blog more but need sleep....  zzzz...

Fundamental Analysis: The Cash Flow Statement

Cash Flow Statement quite obviously describes whether cash is flowing in or out of a company.  There are three sections.  

Firstly, Cash Flow from Operations.  

Secondly,  Cash Flow from Investments.  

Lastly, Cash Flow from Financing Activities.




Cash Flow from Operations is an aggregate of Net Income and any depreciation or amortisation put back.  

Depreciation and amortisation represent money which was spent years ago and must be added back to give us an accurate picture of the company's Cash Flow from Operations.  

Here, not only do we want to see a positive cash flow, the higher the cash flow, the better.

Next, we examine Cash Flow from Investments.  

Businesses make investments in income producing assets such as production equipment.  

Any money spent making such investments are labelled Capital Expenditures (CAPEX).  

It is also possible for companies to sell such investments and we might therefore get a positive figure under Others.  

However, here, cash flow is usually a negative figure.  

Companies which consistently have very high CAPEX should show that they are able to fund this through internal resources as far as possible and that they should be able to generate higher returns on such expenditures.




Lastly, we look at Cash Flow from Financing Activities.  

Money used in the payment of dividends or in the buy back of shares results in negative cash flow.  

Shareholders like dividend payouts.  They also like to see the value of their shares rising which happens when a company does a share buy back.  

So, negative cash flow here is actually good for shareholders.

Money gained from selling new shares or issuing bonds provides positive cash flow.  Here, again, we get a bit of a twist.  




The company might get positive cash flow through the issuance of new shares or bonds but it is actually bad for the shareholders as their shareholdings are diluted and bonds have to be repaid with interest.  

Unless the company is able to demonstrate that it will be able to use the funds raised to increase value for its shareholders, it has to be looked at most cautiously.

This post ends the quick introduction to Fundamental Analysis which I set out to blog starting with The Income Statement and followed by the Balance Sheet.  




I hope you have found these posts informative and if you are not already doing FA, I hope these have made you interested enough to look into the subject in greater detail.

I will be going away for a short holiday over the next few days with my family and will return mid week.  I wish everyone the very best and I will talk to you again soon.

Related posts:
1. Fundamental Analysis: The Income Statement.
2. Fundamental Analysis: Balance Sheet.
3. Why is Warren Buffet the world's greatest money maker?