Daily STI - revised

Grr...This morning's STI chart really confused me. Down day on high volume means that the trend is very likely to continue. So i was very puzzled by the little rally we are seeing across Asian markets now. I had another look at the STI daily charts and i was a little comforted that the huge volume i saw this morning was some data error.

Yesterday's down day was on light volume. Unpleasant for those caught on the wrong side of the market, but it means that people are taking profit; not selling down. From what i can see at mid-day, there seems to be good support at 1676. No doubt the STI closed below that yesterday, but it bounced off that level today and appears to be holding well. MACD and stochastics are both declining, so what to make of them? Well, the STI, based on the weekly chart is still on an uptrend, but looks like is taking a breather.

Daily STI chart

Since i put up a daily chart of STI over the weekend, i thought i should update it. I am not sure if there is a mistake in the charting software, but yesterday's volume was HUGE! Momentum is coming down and stochastics is still in the overbought region (>80%). Looks like we are headed towards 1600.

Capitaland - The run up continues

The daily chart of Capitaland is still showing a strong uptrend after breaking through a resistance of $2.16. Last Thursday, it broke through another resistance level, $2.35, and on Friday, the price softened a bit to a low of $2.38 before settling at $2.42. I think a good trade for Capitaland would be to go long on weakness next week, with a stop slightly below $2.35 and a target price of $2.70. This price target is not obvious from the daily chart, but have a look at it weekly chart below:



Here, you can see that for six times from Oct08 to end 2008, the price of Capitaland tried but failed to break through the $2.70 mark, except the one time in the first week of Jan09 in which the price of Capitaland broke through, but only to plunge dismally and to close below the open of the previous week's open, forming a bearish engulfing pattern.

COSCO - An update

i was going through my blogs when i came across my short 'buy' note on Cosco. So i decided to look at the chart and to give an update. In my previous note, i commented that a buy signal was given when the MACD (moving average convergence divergence) lines crossed. i also noted that there was strong resistance at $0.775 and if the price was able to break out from this level, the next resistance (or target price for those going long) would be $0.905. After three failed attempts to breech $0.775, the price of COSCO retreated, formed a hammer on 20 Mar09 and finally burst through $0.775 on 23 Mar 09 on high volume. It looks like it is on the way to $0.905. What caught my eye as i was looking at the chart of COSCO is what looks like a 'dark cloud cover' on the 24 Mar 09. In this case, the peneration of the black (red) candle into the previous day's long white candle looks suspiciously like the 'dark cloud cover' formed by today's STI price action. But in this case, the peneration of the black candle is obviously less than half of the long white candle, so this should not be mistaken as a 'dark cloud cover'. The stochastics also show that COSCO is 'overbought', but i would be comfortable to hold a long position as the momentum, shown by the slope of the MACD lines and the increasing green bars of the MACD-H (histogram), is still positive.

Dark cloud cover? - STI

Let us take a look at the weekly chart of the STI. I was quite surprised by the strength of the uptrend of the STI this week. The STI started the week at 1608 and ended at 1745; a gain of 8.5%. Also this uptrend was on the back of high volume (compared with the volume of previous weeks). So the uptrend, from a middle term perspective, looks good and the STI appears headed towards 1926.


Let's have a look a the short term picture via the STI's daily chart. The outlook for the short term is not so certain. Today, the candlestick chart formed what look like a 'dark cloud cover' pattern. Such a formation occurs when the price opened higher after a long white (green here) candle but closes below the mid-point of the white candle. In this case, the mid point of the white candle is 1732. Today's index hit a low of 1729 but closed at 1745. So this is not quite a dark cloud cover if we follow its definition strictly. But i would still be a bit cautious next week. Previous support for the STI before it broke towards 1500 was around 1673. Its behavior around that level is quite important. If it is able to stay above this level, then that would give further weight to the uptrend, or at least, to consolidate for a while before pushing upwards. If not, then we may be headed towards 1570 again.

Some are saying that the STI is overbought and hence should reverse. So for this daily chart, I included a chart of its stochastics. On it are two parallel grey lines at the 20% and 80% mark (the scale on the right is in %). By definition, if the red line goes below the 20% line, it is (whatever the stochastic is measuring) oversold and if the red line goes above the 80% line, it is overbought. Overbought, as defined in Investopedia, is a situation in which the demand for a certain asset unjustifiably pushes the price of an underlying asset to levels that do not support the fundamentals. In technical analysis, this term describes a situation in which the price of a security has risen to such a degree - usually on high volume - that an oscillator has reached its upper bound. This is generally interpreted as a sign that the price of the asset is becoming overvalued and may experience a pullback. The STI certainly is in overbought territory. One trading technique is to go short when the stochastics dips below the 80% line. Another is to buy/sell when the stochastics cross each other. But it would be a mistake to go short simply when stochastics enter the overbought region. In a strong market (either rising or falling), stochastics can stay oversold or overbought for extended durations. Rule of thumb: Do not anticipate. Let the market lead.

Sorry, long story. Bottom line: The picture is mixed; for the middle term, the uptrend for the STI looks strong, while for the short term, it looks a bit uncertain. However, I do not think it would be wise to go short; a better strategy would be to go long on pullbacks.

A review of the STI

I was a bit disappointed when the DOW went down by 122 points on Friday. But, on a positive note, it was up for the week and has been up two weeks in a row - something it hasn't done for almost a year.

For the STI, what do we see? From the monthly chart, it appears that support at 1472 is pretty firm; the STI did go below that level in early March, but quickly bounced off. So at this point, it looks unlikely that we will head towards the 1200 level reached in 2003 unless the STI manages to close below 1472 on a monthly chart.

Let's have a look at the weekly chart:



STI's movement has been sideways and largely range bound between resistance of 1926 and support of 1472. Looking at the momentum of the STI, it does look likely that the STI will trade towards 1700 within the next 2-4 weeks. If it fails to close above 1700, it is likely to turn down and retest the 1570 level again. If it does manage to close above 1700, the next hurdle would be 1926. A close above 1926 would be very significant and i believe would signal the end of the bear market.

COSCO - ready to go?

Here is a daily chart of COSCO. A buy signal was triggered when the MACDs cut on the 13 Mar09. However, the price failed to break through resistance of $0.775. If it does, the target price is $0.905. Stop should be placed around $0.70.

Bullish divergence - Capitaland

I was very excited when i saw the bullish divergence chart pattern on the daily chart of Capitaland. Bullish divergence occurs when the price traces a lower low, ie $1.94 on 10 Feb and $1.70 on 3rd Mar 09, but the MACD traces a higher low instead. (See the trend lines in green. My trend line on the price is off. Sorry.). This shows that the bears are losing steam. A buy signal was given when the MACD lines crossed around 11 Mar09, around $1.99, target around $2.35, stop around $1.91.

What a difference a week makes - DBS

Last week, it looked as if DBS was headed towards the $5 mark after closing below the low of $6.63 level reached in Apr 03. But the price rebounded strongly last week. So for now, it looks like the bears are not able to push the price of DBS below $6.63. The long term trend is still down as show graphically by the middle line in the Bollingerbands and by the slope of the MACD lines, but the momentum of the decline is decreasing (as shown by the rising green bars of the MACD-Histogram). When such mixed signals are present, i would not be too aggressive in taking either a long or a short position. But for those who may be familiar with candle stick charting, it does appear that a hammer is starting to form in Mar09. (A hammer is a candlestick formation with a short upper body and a long lower shadow. For it to be called a hammer, the length of the lower shadow must be twice the length of the upper body). This being a monthly chart, we need to wait till end of the month to confirm if this would be a hammer. If it turns out to be, this would be a very strong reversal signal. It would be an even stronger signal if DBS in MAR09 closes above 7.49.

Comments on DBS

Unlike property investment holding companies which are valued on the income generated from their properties (cap rates) and their market values, a generic bank makes money through lending-deposit spreads. In an environment where cost of money is low, but lending rates are high, banks make higher spreads and operating income/int income.

The only issue with banks are their loan losses - where non performing loans have to be provisioned/written off. In normal business operations, thus, banks should be valued on a PB basis where a higher rating would be given for a higher ROE. But when biz conditions worsen like currently, the NPLs will high costs and there is higher risks of lower ROEs and in deep cycles/poor lending practises - losses could ensure. To the extent that these losses eat into their banks' core capital, the bank wld have to raise money (e.g Citibank) Singapore banks are well capitalised, unlikely to see big loan losses since there was plenty of time to restructure the loans, and in worst case - could run into losses for 1+ years - but does not detract from their medium term earning capacity. Thus, I would say banks should not trade at big discount to NTA : its a recurrnet income model and barriers/competitive position of banks are better than ever. In asian crisis where conditions in Asia were really bad, banks are worst traded at 0.8x book and outperformed the market.

Pearly Yap

DBS: Back to 1998?

DBS

The selling has resumed yet again. Today, DBS closed at $6.45, below the low recorded in Apr 2003 of $6.63. The next tentative support is $5.10 recorded in Feb 99 and below that, a much more substantial support at $2.59 recorded in Sep 98. At the rate DBS is falling, I will not be surprised to see it test the $5.10 level. According to their latest annual report, as at Dec 2007, DBS's NTA per share is $9.64. At $6.45, it is trading at about 32% discount to NTA. Cheap? Yes, when compared to its NTA. But i dont think it is safe to buy this stock yet. I would avoid buying this stock until the trend, as indicated by the MACD lines, turn up.

Capitaland

The STI closed at 1533 today - breaking the 1570 support in Nov 08. The next support is 1472 in Oct 08.

Let's look at a daily chart of Capitaland, attached above. Today, it smashed through its support of $1.885 recorded in Oct 08, closing at $1.76. Notice the successively higher trading volumes during the last three trading days corresponding to successive lower closes. To me, this shows that the bears are fully in charge of this stock. The MACD (moving average convergence-divergence) indicator has also turned down sharply, indicating that the downward momentum is gathering pace. The opening up of the Bollinger also indicates an increase in volatility on the downside. In my opinion, this stock should either be avoided, or played on the short side.