STI, AusGroup, Golden Agriculture and Healthway Medical

STI closed at 2,769.19, down 24.87 points.  It is still within the uptrend channel and above its 100dMA.  Volume is somewhat reduced and the downwards adjustment in the index is nothing alarming at this stage.

AusGroup looks interesting as volume continues to expand for a second day with price moving up to close at 58c today.  MFI is rising strongly and is almost at 50%.  MACD turned up and a bullish crossover with the signal line seems inevitable.  Currently, the declining 20dMA is providing resistance at 59.5c.  If the price action overcomes this, it could move to 64c which is the resistance provided by the 50% Fibo line.  This is also the price level which the descending 50dMA seems on track to meet in the next few sessions.

Golden Agriculture experienced a down day closing at 55c on the back of reduced volume.  MACD is poised to cross above zero which would herald the return of positive momentum.  Gap support at 54c.  My target price for this counter remains unchanged at 59c if the upmove should continue in the near term.

Healthway Medical's price action formed a gravestone doji today.  This is a bearish candlestick. With the MFI and MACD turned up, the expectation is for some continuing push upwards but these momentum oscillators are lagging indicators.  So, we have to take this with a pinch of salt.  If price action does not close above the resistance provided by the descending 20dMA at 15.5c, we want to at least see the rising 50dMA confirmed as a support at 14.5c.  All we can do is to wait and see.

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?

Fundamental Analysis: Balance Sheet

A company's balance sheet is a record of its assets and liabilities.  

Basically, if we look at how much the assets are worth and deduct the total value of the liabilities, we will arrive at the net worth of the company.  

Net worth or the book value of the company is also known as shareholders' equity.

Under assets, first, we see Current Assets.  

Current Assets are cash and other assets which can be converted into cash within a very short time.  

Usually, they are listed in the balance sheet in order of liquidity with cash being the first item as it is the most liquid.  

Secondly, we have Non-current Assets.  These are assets which cannot be converted into cash within a very short time.

One thing that value investors look out for is how much cash and cash equivalents a company has.  

Having a lot of cash is usually a sign of strength.  

The company will have the ability to seize business opportunities and will be able to go over rough patches in the business cycle relatively intact.

Next on the list is inventory or the goods which are in the company's warehouse which it sells to customers.  

In business, we say that we cannot do business with an empty wagon.  

Our wagon has to be stocked and that's our inventory.  

However, we do not want our wagon to be overstocked as well.  

Goods also run the risk of becoming obsolete in many cases.




Accounts Receivables is next.  

When the company sells goods to its customers, very often, the customers are given credit terms.  

In businesses which have a strong retail bias, this might be a very small amount if it exists at all since they collect cash for all their sales.  

We want to keep an eye on this because if most of a company's Current Assets are in Accounts Receivables, we have to question the financial health of its customers and how long does it usually take before payments are made.

Prepaid Expenses or payment in advance is next.  I like this because it shows that customers are willing to pay in advance before they receive the goods.  

It shows that the company's products are in demand and, probably, cannot be replicated or very difficult to replicate by its competitors.  The company has a competitive advantage.




Next, we move on to Non-current Assets.  Companies might own properties, vehicles and production equipment.  

Vehicles and production equipment will depreciate in time and the value we see in this line is the total value at the time the balance sheet was prepared minus depreciation.

Then, we have goodwill.  This is something which has been discussed in the case of Healthway Medical.  

This number appears when a company buys over another company at a price above the latter's book value.  

The value above the book value ends up as goodwill in the former's balance sheet.




This is followed by other intangible assets which cover copyrights, patents, trademarks and so on.  

Only intangible assets bought from another company can be reflected in a company's balance sheet.

Both goodwill and other intangible assets must be amortised over time if they have a finite life.  

If they are not depreciating in value over time, then, they need not be amortised.

Long Term Investments are next.  This shows any investments a company might have made which have durations of longer than a year.  

We will have to dwell on this a bit more to see what kind of investments have been made here as and when it occurs.  

It will differ from case to case but generally, we want to see that these are investments which generate higher returns for the company.




An important ratio we use in fundamental analysis is Return on Assets (ROA).  

This is a measure of the level of efficiency in which a company utilises its total assets.  

If we take net earnings and divide this by total assets, we get a figure in percentage terms.  The higher the better.

We move on to Liabilities and just like Assets, there are Current and Non-current forms.  

First off under Current Liabilities, we have Accounts Payable which is money owed to suppliers for goods and services provided.

Then, we have Short Term Debt or Debt which is due.  If a company has a lot of Short Term Debt, this could be dangerous in times when credit is suddenly difficult to come by.




To calculate the financial health of a company, analysts employ the Current Ratio which divides the total Current Assets by the total Current Liabilities.  

So, you can imagine that if you have more of the former and less of the latter, it's a good thing.  A more stringent ratio is the Quick Ratio and it measures a company's ability to meet its short term obligations using its Current Assets minus Inventory.  Any ratio value of more than 1 is good.

Under Non-current Liabilities, we have Long Term Debts and so on.  

I guess the important thing to say here is that very strong and long established companies which generate healthy cash flow usually have very little debt.




I think it is common sense that we want to see as little debt as possible in a company's balance sheet but debt is sometimes a necessary evil.  

So, we have to evaluate debt on a case by case basis.

I hope this quick introduction to what is a Balance Sheet and how to use certain ratios to determine the health of a company is useful.  Next post will be about the Cash Flow Statement.

Related posts:
1. Fundamental Analysis: The Income Statement.
2. Recommended books for Fundamental Analysis.

Fundamental Analysis: The Income Statement

Every trading day would see me looking at charts in the evening and looking out for pertinent news which might have an impact on my investments.  

On weekends, I would sometimes blog about my personal experience and some ideas which I might have about investments.  

The Chinese New Year long weekend is giving all of us a much needed break from trading. Take some time to smell the flowers, so to speak.

I have decided that I will blog about different aspects of FA and this will probably spread over a few posts to make it more manageable.  

My formal education in Economics and Business Administration, specifically, Financial Management help to inform my FA.  

Of course, these are textbook material and I try to keep myself up to date by reading weekly periodicals such as Newsweek and The EDGE.  

I also read analysts' reports, not to blindly follow buy or sell calls but more as an idea generating exercise.  

Being in business development also gives me an inside feel of the business climate especially in South East Asia where the company I work for has the greatest exposure.




In an earlier post, I said that FA could be done on many levels but the most basic level would be looking at a company's financial numbers.  

I have learnt much to my own regret that to overlook this for any reason (usually due to complacency) could be a big mistake.

What is an Income Statement?  

This basically tells us how a company's operations performed over a period of time.  




Right at the top is the gross revenue (GR) the company has generated.  In a company that deals with goods, you will have to deduct the cost of goods to arrive at the gross profit or GP.  

For people who are in tune with Warren Buffet's investment philosophy, you would remember that he says we should always look for companies with GPs of no less than 20%.  In fact, he consistently targets companies with GPs of 40% or higher.

So, let us say that a company has a gross revenue of S$100,000 and their cost of goods is S$60,000.  Gross profit is S$40,000.  

As a percentage, the GP is S$40,000(GP)/S$100,000(GR) = 40%.  

Simple enough.




Does this mean that everytime we see businesses which generate a GP of 40% or more, it is a good buy?  

No, we continue by looking at the next part of the Income Statement which shows the operating expenses.  

These are the Selling, General and Administration expenses or what is referred to as SGA, the Research and Development (R&D) expenses and Depreciation.  

Upon taking out all these expenses, we arrive at the Operating Profit or Loss of the company.  




As you can probably tell, a company which incurs massive expenses despite a high GP is not going to have much left for the shareholders.

The next part is the Interest Expense, Gains or Losses from sale of assets and Others.  

Taking all these out give us the Income of the company before tax. 

We want to make sure that the company is not borrowing too much and not paying too much for its borrowings.  This is what is known as leverage.  

There are many companies which are heavily leveraged and as long as they are making more money than the interest they are serving on their loans, they look good but if the tide turns and, in the last financial crisis, we saw how quickly they could turn, things could become very ugly.  

So, imagine if revenue dries up during a recession and the interest expense remains high, not a pretty picture. 




Having said this, leveraging is not all bad.  Credit is said to be the lifeblood of businesses.  Few businesses in this world operate with zero leveraging.  

As long as it is kept at a level that is manageable, a level that will not threaten the viability of the company in the worst case scenario, it is acceptable.  This is what is called stress testing.

The next part of the Income Statement would be the taxes paid.  

Once this is taken out, we have the net earnings of the company.




I hope you have found this post to be informative and I will blog about the Balance Sheet and Cash Flow Statement in upcoming posts.

Related posts:
Identifying trends and value: FA and TA
Determining the impact of news on specific companies.
Monitoring our stocks.

Gong Xi Ni Fa Cai!

With the Chinese New Year just two days away, I would like to extend my heartiest GONG XI FA CAI to all visitors to my blog.  May the new year bring you the best of luck and may all of us HUAT big time.  HUAT AH!!!





For my sister who wants to go see the Sakura flowers in Japan!




V2EDNMFSHXH3

SPH: Promising signs.

On 9 Feb, I said: "SPH is, technically, the strongest blue chip here. Today, I made an interesting observation. Dare I hope? It looks like a symmetrical triangle is forming in SPH's price action of late. Look out for the MACD (blue line) closing in on the signal line (red line) as it might mean that it is ready to form a bullish crossover. This would mean that price would probably break out higher . With MFI forming a higher low, the buying momentum has an upward bias. I guess a bit of hope doesn't hurt."
Please see: Small, mid and large caps.

SPH continues to move higher and closed at $3.74, above the 20dMA, today.  MACD is rising and closing in on the signal line.  Will it form a bullish crossover this time?  That the MACD is still above zero indicates that the upward momentum has yet to be compromised.  MFI has risen above 50% and it now remains to be seen if it will form a higher high.  Breaking out of the symmetrical triangle could possibly see a higher high formed for this counter at $4 or so.  Heavily vested.  Crossing fingers.

V2EDNMFSHXH3

Golden Agriculture: Delivering the goods?

In a previous post on 10 Feb, I said, "That its correction is at an end is quite evident as it has emerged from its recent steep downtrend resistance. It is consolidating and signs are that price might be getting ready for a move upwards. Initial resistance is provided by the 50dMA and 20dMA at 52c and 53c respectively. In an upward move, these resistance are likely to be swept away. More meaningful resistance are at 55c and 59c."
Please see:  Golden Agriculture: Reversal at hand?

Today, price action formed a strong white candle to close at 54c.  This happened on the back of expanded volume which promises more upside in the next session.  The MACD has made contact with the signal line and a bullish crossover is inevitable.  MFI continues to turn up and approaches 50%.

The first meaningful resistance at 55c has a high chance of being tested in the next session.  59c is a realistic target in the event that price continues to move up which seems likely enough.  I have a strong vested interest in this counter and I am hoping for the best.


V2EDNMFSHXH3

Healthway Medical: Oversold

For those of you who are beginning to wonder if the decline will ever stop, remember I said that every lower support becomes stronger in a situation where pullbacks happen on lower volume.  MFI took a sharp dip today into oversold territory even as the MACD has a buy signal, the first in more than 2 weeks. 

Remember that TA shows where the supports and resistance levels are.  It does not mean that those levels would be reached.  For anyone who wants to go long here, it might be a good idea to hedge at 13.5c instead of waiting for 13c to be hit, which might or might not happen.  Remember, this is a hedge, there is still a chance that 13c might be reached.

Healthway Medical: Breaking an important support.

V2EDNMFSHXH3

F&N: Rocketing upwards.

This counter rocketed upwards as it reported a 55% increase in nett profit.  This is on the back of expanded volume.  Very impressive seeing as it was a pre holiday trading session.  Resistance at $3.92 was sliced through like a hot knife through butter.  However, the dead cross at the confluence of the 20dMA and 50dMA was too strong a resistance to break today as price action touched $4.08 and retreated to close at $4.02, just under the declining 20dMA.  This is a fish that swam away from me. No matter. There are many other fish in the ocean.


For those of you who really like the F&N fish and still want to buy some, pay attention to the 100dMA.  This seems to be the resistance turned support at $3.93.  We need confirmation in the next trading session.  This would be a safer level to buy some F&N shares if the support is confirmed instead of chasing.
 
The MACD is closing in on the signal line and a bullish crossover seems most probable.  MFI has risen above the oversold territory and has plenty of room before it reaches 50% which may act as resistance.  Of course, there is plenty of room before it is overbought.
 
Using candlesticks, I've intuitively identified three higher levels of resistance if the counter moves higher.  Good luck to interested parties and congratulations to parties brave enough to buy earlier this week.

V2EDNMFSHXH3

F&N: An amazing reversal

A star performer today is undoubtedly F&N as it continues its amazing reversal to close at $3.92, resisted by the 100dMA.  Volume is lesser than yesterday's but is still respectable given the pre holiday mood.  MFI continues to move up, confirming that some buying momentum is back.  MACD has turned up and is closing on the signal line, seemingly poised for a bullish crossover.  That the MACD is below zero means that the upward momentum in the counter is not back in force.  If the buying momentum follows through tomorrow to break the 100dMA resistance, the next resistance will be provided by the confluence between the 50dMA and the 20dMA, where, incidentally, a dead cross formed today and is likely to be a strong resistance.  Any further move up in price would have to be accompanied by increased volume to break it.

We will need confirmation tomorrow to see if the rising 200dMA at $3.83 is now resistance turned support.  If it is, that might be a good price to buy some F&N shares.  However, one must not be too optimistic as one up day does not make an uptrend and this counter might consolidate in a wide trading band yet.

V2EDNMFSHXH3

Healthway Medical: Breaking an important support.

Healthway Medical relinquished its 14c support level today  and with it the hope that it might consolidate at 14c.  Closing at 13.5c, it seems that people waiting to collect more shares of this counter at 13c might just get their wish.  Volume continues to be very thin but in the absence of any buying momentum, as is evident in the declining MFI, the chances are greater for its price to continue drifting downwards.




Related post:
Healthway Medical: Growing a defensive business
Healthway Medical's growing in china
Healthway Medical: A seven months journey

V2EDNMFSHXH3

Saizen REIT's quarterly report

Saizen REIT closed flat at 16c even though its quarterly report is encouraging. Whether it is because investors want to have more clarity as to exactly when distributions would resume or how much would the quantum of the distributions be, I do not know.  It might also be a lack of interest in the counter due to a paucity of coverage by analysts or perhaps they are waiting for an upgrade by the rating agencies. Suffice to say that this might be a blessing in disguise as I would have more time to accumulate more units in this deeply undervalued REIT.

The following is from Saizen REIT's report this morning:

Property operations of Saizen REIT had remained stable in 2Q FY2010. Gross revenue  decreased by 3.1% in 2Q FY2010 as compared to 2Q FY2009, due mainly to the divestment  of five properties (four properties in 1Q FY2010 and one property in October 2009) as well as a slight decrease in rental rates of new contracts entered into after 2Q FY2009.


The increase in other trust expenses by JPY 6.1 million in 2Q FY2010 was mainly due to accruals for valuation fees. No valuation fees were accrued in 2Q FY2009. The loss on divestment of properties of JPY 10.1 million comprised net loss incurred on the divestment of one property in 2Q FY2010. The fair value loss on financial derivatives of JPY 401.7 million comprised mainly fair value losses on warrants of JPY 389.0 million, which arose due to the increase in market-traded price of the warrants.


Notwithstanding the the repayment of the loans of YK Kokkei and YK Shingen which resulted in interest savings, interest expenses increased mainly due to the increase in interest rate on the loan of YK Shintoku from 3.07% to 7.07% after its maturity default......
 
.....The loans of YK Kokkei and YK Shingen, amounting to JPY 5.4 billion (S$82.3 million), were fully repaid in 2Q FY2010. Pursuant to an agreement between YK Keizan and its lender on 25 January 2010, JPY 950.0 million (S$14.5 million) of its loan was partially repaid in January 2010, with the balance of JPY 586.3 million (S$8.9 million) to be repaid in April 2010. Save for the balance of this loan, which is expected to be be fully repaid with internal cash resources, Saizen REIT has no further loans maturing in FY2010.


Saizen REIT currently has an aggregate of approximately JPY 16.0 billion (S$243.9 million) of properties which are unencumbered. By the end of April 2010, it is expected that the properties of YK Keizan, which are valued at JPY 2.75 billion (S$41.9 million) will be unencumbered after the loan of YK Keizan is repaid.


The Management Team observed that the financing environment in Japan has stablised. With portfolios of unencumbered properties, relatively low overall leverage and the listing status of Saizen REIT, the Management Team is hopeful of making progress in securing new financing.


In respect of the maturity default of the JPY 7.253 billion (S$110.6 million) loan of YK Shintoku, the loan servicer is currently conducting a review of the properties in the YK Shintoku portfolio. The Asset Manager is working closely with the loan servicer on its review and proposed course of action.


Property operations are expected to remain stable in the remaining periods of FY2010. As previously announced, it is expected that Saizen REIT will start accumulating cash for distribution in the last quarter of FY2010, and will resume distribution for FY2010 which is ending on 30 June 2010.

Related posts:
Passive income with high yields: Saizen REIT
Buy Japanese real estate

V2EDNMFSHXH3

3 bue chips and 1 REIT

Saizen REIT: Still trading sideways.  MFI has moved into oversold territory.  The quarterly report will be released tomorrow in the morning before trading starts.  Volume is very thin today as if everyone is waiting for the report before deciding on what to do next.

F&N:  Uptick in the MFI pushed the index out of oversold territory as the terribly oversold counter seems to have attracted some buyers.  Price action formed an inverted black hammer on respectable volume and has moved away from the lower limits of the Bollinger bands.  If this continues, the correction is over and we might see some consolidation.  Initial resistance is provided by a rising 200dMA at $3.83 followed by the 100dMA at $3.92.

Keppel Corp: MFI continues to rise and seems determined to form a higher high.  This is a positive as it signals the return of some buying momentum.  That the black candle day is accompanied by reduced volume today is also a positive.  As of now, the counter's uptrend is stil intact.

SPH:  A low volume day as price almost formed a white hammer.  MFI has turned up.  Let us see if the symmetrical triangle I talked about yesterday will deliver good news in time.

V2EDNMFSHXH3

Healthway Medical: Almost but not quite.

Healthway Medical looked as if it was going to lose its support at 14c at one point today as almost 10m shares were sold down at 14c and wiped out the entire buy queue.  However, no selldown took place at 13.5c and buyers came back to close the day at 14c. 

The 50dMA support has held up.  This is meaningful as not closing lower today has helped the counter to take the first tentative step away from the lower limits of the Bollinger bands.  It has also broken out of its downtrend resistance.  It is still too early to say if this means that the correction is over but it might just be an early sign.

MACD has crossed below zero, confirming that the upward momentum is well and truly over.  In the next session, if price continues to stay at 14c or higher, we could say more confidently that the counter might be moving into a consolidation phase.

Golden Agriculture: Reversal at hand?

Golden Agriculture is beginning to look more promising.  After forming a nice white candle yesterday which almost engulfed the preceding session's price action, it formed a short black candle today.  In charting terms, this is a thrusting pattern in which the price action moved in the opposite direction of the preceding up day but did not manage to go beyond the midpoint of the preceding white candle.   

The price action also happened on the back of reduced volume which confirms a lack of selling conviction.  MFI has formed a higher low and exhibits an upward bias, possibly indicating increased buying momentum.  The MACD's decline is abating and we want to see the distance with the signal line closing which will happen if a bullish crossover is going to take place.

Golden Agriculture is still trading above its uptrend support despite its price having corrected by more than 20% from its recent high.  That its correction is at an end is quite evident as it has emerged from its recent steep downtrend resistance.  It is consolidating and signs are that price might be getting ready for a move upwards.  Initial resistance is provided by the 50dMA and 20dMA at 52c and 53c respectively.  In an upward move, these resistance are likely to be swept away.  More meaningful resistance are at 55c and 59c.

Small, mid and large caps

The STI gained 51.4 points to close at 2,745.02 on relatively low volume.  This might have been the rebound that stale bulls were waiting for in order to reduce exposure in some index linked counters.

Healthway Medical closed at 14c today and it remains to be seen if this support would hold or would 13c, the next support, be tested.  The declining volume continues to confirm a lack of selling conviction and as the price declines, the chances of supports holding become higher in this light.  With the MACD declining and positioned just above zero, there is almost no doubt that the upward momentum is over.  MFI confirms this as it did not rebound off the trendline support today, confirming a lack of buying momentum.  Now, we have to pay attention to the Bollinger bands.  See how the price action has been hugging the lower limits of the Bollinger bands?  We want to see the price action detaching and moving inwards towards the 20dMA.  That would be the first sign that the correction might be at an end.  This would likely be followed by a consolidation phase.  Strategy: I'm holding on to my Healthway Medical shares and will add to my position again once I see signs that the correction has ended.

Price of crude palm oil (CPO) closed at RM 2,561 as it continues its upward climb after reaching a recent low of almost RM 2,400.  It looks likely that it will continue to rise and test the trendline resistance.  Given the current weak sentiments, a lower high would seem to be more probable.  Golden Agriculture seems to echo the relatively positive performance in CPO and closed at 51.5c, forming a white candle in the process.  However, this is on relatively low volume which makes the upward move in price less convincing.  This is echoed by the MFI as it stays flat, signalling a lack of buying momentum.  A flat 50dMA at 52c provides immediate resistance.  If this is taken out, a declining 20dMA provides a stronger resistance at 54c.  Strategy: Look to the MACD (blue line) for signs.  Once it closes in on the signal line (red line), that is a sign of a possible reversal.  Of course, to be safe, wait for confirmation as the MACD crosses above the signal line.

Saizen REIT ends at 16c on another low volume day.  There is not doubt that the counter is stuck in sideways trading but the uptrend is intact.  Let us see if the report due to be delivered in the morning of 11 Feb 10 will provide some stimulus here.  Strategy: Accumulate.

Keppel Corporation closed at $8.34 on a white candle day as it's resisted by the 50dMA.  It did manage to safely stay within its uptrend although the diminished volume does not make this convincing.  The overall picture is quite pleasing as the upmove today means that the low of $8.12 formed in the last session is a higher low.  Will the price break resistance tomorrow to test the recent high?  MFI shows that the buying momentum has an upward bias and bulls might breathe a sigh of relieve yet.

F&N today confirmed that it is indeed the weakest of the three blue chips I have been looking at in recent days.  The black candle formed today is accompanied by very much higher volume as price closed at $3.78.  MFI plunges deeper into the oversold territory and the MACD continues its descend and is pulling away from the signal line.  All these means that F&N is terribly oversold but such strong selldowns usually have some momentum.  It would be wise to wait a bit for some signs that the correction is over before going long.

SPH is, technically, the strongest blue chip here.  Today, I made an interesting observation.  Dare I hope?  It looks like a symmetrical triangle is forming in SPH's price action of late.  Look out for the MACD (blue line) closing in on the signal line (red line) as it might mean that it is ready to form a bullish crossover.  This would mean that price would probably break out higher .  With MFI forming a higher low, the buying momentum has an upward bias.  I guess a bit of hope doesn't hurt.

Are the blue chips singing the Blues?

No morning star formation for F&N.  In fact, price opened lower at the 200dMA, $3.80, made a half hearted attempt to rise only to close lower at $3.76.  Breaking the 200dMA is very bearish since it signals the end of a longer term uptrend.  The consolation?  The volume is much lower and MFI has entered the oversold region.  Is there no respite?  It certainly looks like there would be more downside.  Looking at the weekly chart, we see the 50wMA rising and looks set to forming a golden cross with the 100wMA at $3.60.  I might be tempted to buy some at that level then.

Keppel Corp shows relative strength compared to F&N even as the morning star formation failed to materialise.  Price did open and close higher compared to the previous session, almost forming a black hammer in the process.  Closing at $8.24, however, is under the 100dMA which is at $8.27.  This confirms that the 100dMA is now the immediate resistance.  20dMA and 50dMA have both completed their downward turns and seem determined to decline.  Dead crosses up ahead?  A look at the weekly chart shows that the price has been hugging the 20wMA for support in the past three months.  The MACD continues to decline and the jury is out on whether the 20wMA will continue to be a support.  If the 20wMA breaks, there is some way to fall.

No morning star either for SPH but it remains the strongest of the three blue chips here.  Price closed lower at $3.68 and formed a black hammer but not before touching a low of $3.65 to test the 100dMA.  So, is SPH a safe haven?  Nothing is safe if the bear comes back.  Looking at the candlestick supports and resistance, if SPH breaks its trendline support, it could sink rapidly to $3.40 which coincides with the rising 200dMA.  If that happens, I'm bringing out my warchest.

Related posts:
A tale of two blue chips: F&N and Keppel Corp
Is SPH the bluest of them all?

A weak showing

No morning star formation for Golden Agriculture.  Price closed right smack on the 50c support level.  Even though volume expanded to become the highest in the last three sessions, the picture of a low volume pullback is still valid.  That the price touched a low of 49c before rebounding suggests that the 50c support has become porous.  100dMA is at 48.5c and should provide the next level of support.  If this breaks, there is some way to fall.  Of course, if the 50c support level continues to hold up, chances of some upside action will increase.

The low volume pullback picture for Healthway Medical is intact.  Price action tested the 14c support level today before closing at 14.5c.  If 14c breaks, the next level of support should be where the 50dMA is and that's at 13c.  MFI has turned down and looks set to test its trendline support.  Let's see if it rebounds to form a higher low.  If it does, it would be a positive.  Otherwise, it's back to being lacklustre.  MACD continues to descend and is nearing zero.  If it goes below zero, it would signal the end of the upward momentum.

Saizen REIT remains rather illiquid and closed with a gravestone doji at 16c.  The daily MAs are flattening out and indicate a period of low volatility as prices have been trading sideways.  Looking at the weekly chart shows that the price is still trending upwards.  This is the longer term picture.  In terms of fundamentals, Saizen REIT is an attractive longer term investment for anyone who wants to buy residential real estate in Japan at a huge discount and it is comforting to see the chart confirming that the trend over the longer term is still up.

Gold or silver?

I have blogged about gold and how it might be a good idea to buy some to protect our wealth against a backdrop of higher inflation.  For almost a year now, I have been hearing from various quarters that silver is undervalued and from a value perspective, it is a better buy than gold.  Certainly, Marc Faber and Jim Rogers, two of the greatest financial brains of our time seem to think so.  This is not a new idea but it is to me since I have not seriously looked into this before.

Silver is a real asset, with real value, just like gold, as its supply is finite.  Fiat currencies, on the other hand, do not have any intrinsic value and more could be produced at will.  So, we expect silver to at least keep pace with inflation and in an inflationary environment, an investment in silver should protect our wealth from being eroded.

So, I decided that I should do some research on the subject even though I am quite comfortable with my current choices in investments.  If I decide not to buy any silver in the end, I would have gained some useful knowledge anyway, I rationalised.  I found much information and I am now posting what I feel are some interesting findings.

From MoneyWeek, 24 April 09:

Indeed, well over half of the annual silver supply is now used by industry (in sectors ranging from medicine to aerospace), compared to around 11% for gold. In precious metal upswings, it tends to outperform gold: the "same drivers as gold driving a smaller market ensures that", says Franklin Sanders of The Money Changer.......

.....Once sentiment turns, however, silver can tumble rapidly...

From Mineweb, 5 Nov 09:

The longer term trend channel for silver began on March 21st, 2003 at a low of $4.35 and has upper resistance of $51 and lower support at $12. Such volatility has always been very high because, with the silver market only about 2% that of gold, even a small amount of money flowing into silver has a huge impact.


The medium term trend channel began with a lengthy March through August 2007 consolidation base of $13 - $14 and currently has upper resistance at $32 and lower support at $13.


The Gold:Silver ratio has ranged from 14.9-to-1 in January 15, 1980 at the time of the record high gold and silver prices to 99.8-to-1 on February 22, 1991 when the price of silver was particularly depressed.


The current short term trend channel began in November 2008 at $8.79 and currently has upper resistance at $22 and lower support at $15.50.

Silver is currently trading at the higher end of the Gold:Silver ratio since 1980.  Silver is now US$15.15/oz while gold is US$ 1,052.20/oz.  This gives us a ratio of 69.45 to 1.  This is closer to the historical high of 99.8 to 1.
So, there seems to be some truth in the claim that silver is undervalued now and that it is a laggard in the realm of precious metals or it could also mean that gold is simply too expensive.  Some hedging might not be a bad idea.

There is a very easy way to gain exposure to silver in Singapore through a Silver Savings Account with UOB.  I might just start an account.  Just like gold, I will probably be buying silver with an aim to protect my wealth with the increased likelihood of higher inflation in the coming years.  It will not be for trading.

Related posts:
Gold as an insurance against inflation.
101 investment choices.

Is SPH the bluest of them all?

Some readers are disturbed by my write up on F&N and Keppel Corporation yesterday.  Well, if I had long positions in those counters at this point in time and if the positions were big and if they were bought at recent highs, I would be disturbed too.  Would they become blue black chips?

So, are there no bastions of strength left, seeing how F&N and Keppel Corporation are in precarious positions?  Aren't blue chips supposed to be the strongest of them all?  Well, the color blue ranges from a very light baby blue to a very dark midnight blue.  Things are always relative, remember?

I have mentioned quite a few times in my blog and elsewhere that my favourite blue chip has been SPH for quite some time.  I like their core business.  I like the Paragon building.  I like how they have diversified into property development.  I like their relatively high NAV.  I like their relatively low PE.  I like their current assets.  I like their relatively generous dividend payouts. Relative?  Relative to other blue chips, that is.  I also like the fact that Dr. Tony Tan is at the helm.  So, the fundamentals are good.  What about the technicals?

Technically, SPH is less volatile compared to Keppel Corporation and is more similar to F&N.  SPH is very comfortably positioned in its uptrend. Unlike F&N and Keppel Corporation which are both hanging onto their trendline supports for dear life, we see SPH forming a white spinning top in the last session, closing at $3.70.  Trendline support which I have drawn in orange is at $3.59 thereabouts.

The white spinning top looks like it's setting up for a possible morning star formation.  Sounds familiar?  Price will have to open above $3.72 and close higher in the next session for this to be valid.  I have drawn a trendline resistance in brown color.  This connects recent highs.  Any move up in price should meet with resistance provided by this trendline, currently at $3.76 or so.  Not much upside?  Looks like it.

What about the downside?  I am not delusional.  I do not think that SPH is immune to negative sentiments. The MFI continues to decline and at 35%, it is not oversold yet.  The index has been forming higher lows and if we connect these lows, we see a gently rising support line.  The probability is greater for the buying momentum to continue weakening towards this line.

As buying momentum weakens, a decline in price might see the orange color trendline support tested.  That would be a nice level to buy some.

SPH is my single largest investment in a blue chip company for a few months now.  I am in no hurry to divest and would in fact buy more as it weakens to support.

A tale of two blue chips: F&N and Keppel Corp

A late night chat with La Papillion in his cbox led to a comparison between F&N and Keppel Corp.  I decided to do a TA on both counters to see which one has relative strength.

F&N's close at $3.83 is supported by the rising 200dMA and the trendline support which I have drawn in orange color.  Further decline in price would mean that the uptrend is over and it's a double whammy for F&N as the 200dMA which is an indication of long term trend would be violated at the same time. A quick look at the weekly chart indicates the next support to be provided by the 100wMA which is at $3.65.

Using two sets of Fibo lines, we see that the $4.00 mark has two Fibo lines which are very close to each other which indicate that it is an important support.  This is further confirmed when we realise that it is a many times tested candlestick resistance turned support as well.  Breaking this critical support on 2 Feb was a very bearish sign.

The MFI continues to decline and has formed a new low.  It is nearing the oversold region.  That the volume has been diminishing as the price weakened in the last two weeks is a positive for the bulls.  There is a chance we might have a candlestick formation known as the morning star if the price opens higher than $3.89 in the next session and closes higher.  For those who have bought some in the last session or two, good luck.

Keppel Corp's chart, relative to F&N's, shows some strength.  Overall, Keppel Corp's price is being held down by a gently rising 200wMA. Everytime its price approaches the 200wMA, it would pull back. The 200wMA is currently at $8.87.

The buying momentum has not weakened as much as F&N's as could be seen in the MFI.  The index has been forming higher lows and recently formed a lower high.  However, breaking the 100dMA support on high volume to form a doji at $8.18 isn't exactly comforting. 

Of course, it is possible that the price action is setting up for a morning star formation as well.  This will transpire if next session sees the price opening above $8.20 and closing higher.  In the next session, we will also have confirmation if the 100dMA is now a support turned resistance at $8.26 thereabouts. 

I have drawn the trendline support in orange color and just like F&N, Keppel Corp is resting on the trendline and if price weakens further in the next session, the fast rising 200dMA is at $7.75 and should provide support. 

Both blue chips, in my opinion, have a strong thrill factor at the moment. To those who are vested, sit tight for the ride and good luck.

Related post:
Revisiting Keppel Corporation.

A capital question: how much to have or how much to use?

I remember reading a book titled "The Swiss Family Robinson" in my school going days.  It was one of many classics such as "Black Beauty" and "Call of the Wild".  

It is very strange but most people who are younger than me by just, say, 6 or 7 years have never read these books before.  Classics, they are.  Anyway, I digress.

The book in question is about how a family got shipwrecked on an island and had to to use whatever was available there to build a life for themselves and over time, they did quite well.  Very resourceful family.  The father would praise his children if they came up with a good idea by saying: "That's a capital idea!".  

I have yet to come across anyone in real life who would use the word "capital" in the same way.  It might be a very English or a very archaic usage since the book was written in the 19th century.  

Now, that brings me to the topic of this post: capital.  Specifically, capital for investing in the stock market.

Now to do my impression of Forrest Gump: 

"My mama told me that I must pick the right people when I want to talk about stocks which are undervalued as not everyone has the ability to buy."  

Very true but it is hard to identify the "right" people, you might agree.

So, there is an advantage about sharing ideas in a blog.  Visitors who come to my blog are probably interested in investing and making money in the stock market and probably have the means to do so.  

I hope I am right and not being delusional on this point though.

I like the saying that we can bring a horse to water but we cannot make it drink and I've had more than my fair share of horses which do not drink.  Maybe, they were actually camels and my ageing eyes mistook them for horses. 

I digress again.

Back to the topic.  

Now, having some capital is one thing, a question often asked is how much do we need to have exactly before we start investing in the stock market? I have been asked this a few times before.  

A hairstylist asked me if S$10k was enough.  The concept of "enough" is relative like so many things in life.  Very few things in life are absolutes.  However, the question of whether something is "enough" is a very prominent one in life.  

How much to have?

I will use a real life example which happened to someone I know as an illustration.  He had only $5k in savings and went into the market in 2008.  Even with the market running up in the last one year or so, his initial investment is still worth less than $5k today but having used up all of his capital in 2008, he could only watch silently as the market recovered.  Well, he wasn't very silent about it but you get the point.

Then, am I suggesting that if we had only $5k in capital, we should not participate in the market, that we should have more capital before buying shares?  

No. Spare cash that is not needed in the near future or is not part of an emergency fund (e.g. 6 months worth of expenses to be put aside in case of unemployment), should be made to work harder for us.

It is, quite simply, a question of proportion.  Of course, with only $5k, the choices are more limited but the idea is the same as for someone with $50k or $500k.  

Don't plonk all of it down at the same time on one counter or a few for that matter. Always hedge since nothing is ever for sure.  

The question is how much to use for each trade, 10%, 20% or 30%.  

This is up to the individual.  The idea is to reduce risk and taking small steps reduces the probability of a fall.

There is nothing wrong with a $1k value for each transaction and in the process incurring a 3% cost (based on a minimum of $28 brokerage fee per transaction plus other costs) if you were to make more than 10% per annum on that decision.  Nothing wrong at all.  

Rome was not built in a day.  

Wealth building takes time, realistically.  More haste, less speed.

Over time, as our capital grows due to increased savings through employment, capital gains from investments, dividends from investments or some other means, we should not forget this very simple concept.  

"How much to use?" is very often a more pertinent question than "how much to have?".  If you think about it, it applies to other aspects of life as well.

Related post:
Excuse me, are you an investor?