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.

GOLDEN AGRI-RESOURCES

The STI chart is pretty depressing. Apparently, it was the lowest close since 2003. To me, 1570 is key. Next would be 1474. If the STI were to breach these two levels, then I am afraid that we are looking at the 1205 level seen in Mar 2003.

Are there any bright spots in this gloom? Have a look at Golden Agri. Golden Agri-Resources is the world's second largest oil plan plantation, by planted hectarage, with the world's largest total land bank. This counter caught my eye as it has been very active during the past few weeks compared with the general sluggishness of the rest of the market. Its weekly chart is shown above. Like the STI, it too shows a spectacular descend, with its high of $1.25 in Feb 08 to a recent low of $0.155 in Oct 08 (a whopping 88% loss). Since then, it has been on a steady uptrend. It appears to be undergoing a slight consolidation, or correction, probably in line with the general weakness in the STI, but as long as the price stays above the middle of the Bollinger Band, i would say that the uptrend is holding pretty well. Notice that the volume has been consistently high since Oct 08, coinciding with the general rise in its share price. It would appear that people are accumulating this stock. To me, this counter is certainly worth paying attention to.

Where are we going from here? Here is a weekly chart of the STI. Unfortunately, the trend is down. The previous support at 1674 was broken yesterday and today, the STI continues to weaken. The DOW is close to is Nov 08 lows. For the STI, Nov 08 low was 1570. Today, we closed at 1629. Let us see if the STI can stay above the Nov 08 lows.

Where are we now?

The STI went on a free fall since Oct07 (high of 3734) till Oct 08 (low of 1473).

After that huge drop in the STI, however, since Oct 08, the STI has been moving sideways. In fact, from Nov 08 to Jan 09, it has been making higher lows. The bars of the monthly MACD-Histogram has changed from red to green, indicating that the downward momentum of the STI has changed from negative to positive. Does this mean that the STI will rebound soon? No, I am not suggesting that. What the chart seems to indicate is that while there is still much uncertainty going forwards, the selling pressure has certainly eased and that it does appear that there is more upside than downside to the STI.