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.