Charts in brief: 18 May 10.

Nice little up day for the STI. I am staying defensive and waiting to see if the support at 2,780 holds. Global stock markets' almost relentless climb upwards is experiencing a few much overdue stumbles and falls. Before the markets go higher, they could go lower.

Earnings upcycle not enough to lift STI, says CIMB
Tuesday, 18 May 2010

© 2010 - The Edge Singapore

CapitaMalls Asia: Another up day as price closed at $2.16.  MACD continues rising in negative territory.  MFI is rising towards 50%.  OBV is rising.  However, the negative divergence between volume and price movement is glaring.  As price rises, volume decreases.  The volume should ideally increase in order to have a sustainable move up in price.

$2.19, the bottom of the base formation in February is likely to be a strong resistance. If we use the exponential 50dMA, we see something very interesting. It is at $2.19.

The Exponential MA, or EMA for short, has more weight given to more recent data. This is useful when we want to gain some insight into shorter term psyche of market participants as more recent price movements are fresher in their collective memories. Will CapitaMalls Asia test $2.19? That, I do not know but I know I would be 100% divested if it does as the technicals favour further weakness.  I believe that short sellers would find $2.19 almost irresistable.

SPH: On Monday, it closed for first time in a long time below the 100dMA. Today, the attempt to recapture the 100dMA support failed. I would wait to see if the 200dMA is tested and if it holds in such an instance. The 200dMA is currently at $3.70.  If the 200dMA holds, I might buy some.

LMIR: I am taking a longer term view with this counter. I continue to like its high yield and low gearing. In the shorter term, there is no question that it is bearish even though the weakness is on relatively low volume. I am looking at its weekly chart to gain insights into its longer term technicals.

It would seem that 47c is an important support provided by candlesticks and the rising 50wMA. OBV is more or less static which, to me, suggests that most unit holders are long term investors. The MFI has been forming lower highs and is currently at 50% which could act as support. Would I buy at 47c? As a hedge, perhaps.  I won't throw in the kitchen sink because the lower highs in price since 11 January this year give me a feeling of unease. 44c, anyone?

Saizen REIT: The recent report by Saizen REIT's manager seems to have reassured investors and although we are not seeing any enthusiastic buying up, we are not seeing any desperate selling either. Fundamentally, there is increasing recognition that this REIT is heavily undervalued.

I mentioned before that the descending 100wMA is exerting some downward force on the price of this REIT and it was at 17c last week.  This week, it is lower and approaching 16.5c.  If we look at the weekly chart, we see that the resistance provided by the100wMA has been challenged.  This happened yesterday. 

The rising 20dMA and 50dMA should inevitably form golden crosses with the descending 100wMA. Fibo line projections show 150% at 20.5c and 161.8% at 21c.  These would be my immediate targets in a breakout scenario.

Related posts:
SPH: Another black candle day.
LMIR: 1Q 2010 results.
Saizen REIT: 3Q FY2010 results.

Tea with AK71: Life.

I like the Bukit Merah and Telok Blangah area for all the gigantic trees.  They provide shade and soften the surroundings of the neighbourhoods with all their concrete structures.  These trees must be very old.  One of them fell today across several lanes in Jalan Bukit Merah just across from Jalan Membina and obstructed traffic in both directions, crushing a van in the process.  Traffic came to a standstill.

More than ten SBS buses lined up on the extreme left lane as they could not move on. Hundreds of passengers must have been affected. Cars had to back up, reversing all the way to the T-junction with Kim Tian Road.  Alternative routes were jammed up as well as it was the morning rush hour.  Imagine the chaos and I was caught in it!

As this took place close to my home, I turned back and came home, calling the office to take a day's leave from work. A frightening thought came to mind that it could have been me. What if the tree had fallen on my car and crushed me in the process?  Scary thought.  Life is so very fragile.

At home, I drew the curtains which I rarely do and let in the sunlight. I did some gardening, something I've not done for a while. I washed the balcony and cleaned the French windows. I boiled some barley water for my very bad throat and put some dirty laundry to wash, using a new washing powder my mom got for me which supposedly allows indoor drying without any odour.  I might go see a doctor for my throat later too.

All these generated a thought: I used to always fight for what is right and what should be. As I age, I understand more and more that, sometimes, it is futile to fight especially if the situation is beyond our control. Life can be uncomplicated which can only be a good thing.

OK, the washing machine is beeping which means the laundry is done. Have a good day, everyone!

STI at 2,425 points?

What we have is a sea of red.  Sentiments have not been so bearish in a long time as the HSI sank below 20,000 points.  I continue to believe that any rebound that comes along in the near future should be an opportunity to reduce exposure in the stock market. This is more so for stocks which are clearly in a downtrend. Having said that, the STI is holding up rather well under all the selling pressure.

As the index retreats, the OBV declines. This is an obvious sign of distribution. The MFI has been forming lower highs and lower lows.  Positive buying momentum is lacking.  In the near term, the 2,780 level or so should be an important support.  This is confirmed by Fibo lines, the rising 200dMA as well as candlesticks.

Looking at weekly charts is sometimes very revealing. If we look at STI's weekly chart, we understand why it is more resilient than some other indices. We understand why the 2,780 level is an important support. 2,780 is also where we find the uptrend line and the flat 200wMA. If the longer term uptrend is to stay intact, 2,780 must not break. Will it break?  I cannot say for sure, of course, but the technicals are rather weak.

1. Volume has been rising as the index retreated in the past few weeks.

2. The high achieved in the week of 12 April was accompanied by a lower high on the OBV compared to the high achieved in the week of 4 January, telling us that there was less accumulation taking place in April. Similarly, the MFI was lacklustre on 12 April compared to where it was on 4 January.

Not all weekly MAs are uptrending.  The 100wMA is still declining and is currently at 2,425. The chances of the STI retreating further exist.  Much depends on whether 2,780 holds up. Could we see the STI at 2,425 in the coming weeks? Perhaps.

Healthway Medical: A weak first quarter.

Earlier this year on 24 Feb, I said that Healthway Medical's share price did not provide value for money anymore. By then, I was 80% divested. Primarily, I was concerned about the heavy dilution which took place due to the rights issue and a following share placement which increased the number of shares from 1.384b shares to 1.841b shares.  I explained that I would not buy more Healthway Medical's shares unless I feel it provides value for money once more.

Even earlier on 16 Jan, I explained the rationale for partial divestment based purely on technical analysis. Healthway Medical's share price gained almost 40% in a matter of days.  "The fundamentals and prospects are still good over the longer term. I just feel that the market became a little too enthusiastic and sent prices up too high and too quickly. I liken it to a sprinter who is able to run very quickly over short distances but the speed is unsustainable over longer distances."

Thus, in the recent months, informed by a combination of TA and FA, I sold down my stake in Healthway Medical and at the moment, I am almost 100% divested, retaining only the rights shares and shares from the scrip dividend exercises.

Technically, now, Healthway Medical is testing resistance at 15.5c after it went CD. Fundamentally, I am still waiting to see if Healthway Medical could utilise the funds raised from its rights issue and share placements well enough to increase earnings at least proportionally to restore EPS to pre-dilution levels. With this in mind, I looked at the 1Q 2010 report released on 14 May.

Compared to the same period last year:
1. Revenue reduced 6.3%.
2. Staff cost increased 20.1%.
3. Profit before income tax reduced 68.5% to S$1.409m.
4. Total liabilities remain more or less the same.
5. Cash and cash equivalents increased from $28.4m to $39.4m.
6. Cash flow from operations became a negative $4.946m compared to a positive $3.974m.
7. Due to its rights issue, cash flow from financing activities is a positive $19.2m.
8. EPS is 0.09c, down from 0.28c.

I would draw attention to points 3, 6 and 8 in bold. The results are disappointing. Given the increase in the number of shares by 33% or so, in the short term, I was expecting the EPS to reduce proportionally by 25% or so.  EPS has instead reduced by 70%!

To be fair, Healthway Medical is going through an expansionary phase and would have more costs and greater expenses. As an investor, to be prudent, I would continue to wait for greater clarity on whether higher earnings would follow, maintaining that the share price at current level does not offer good value.

The technicals suggest that the longer term uptrend is still intact and the rising 200dMA should provide initial support at 14c. The declining 20dMA has formed a dead cross with the rising 100dMA.  Two gravestone dojis were formed in succession in the last two trading days. MFI is flat and OBV has been declining. Ominous signs.  The only consolation I see is the reducing volume as price declined.

There is also a possibility that a double top was formed by the highs in January and March respectively. If the pattern is valid, there is a long way to fall.

Related posts:
Healthway Medical: An updated valuation.
Rationale for partial divestment.