Wednesday, April 18, 2012

The Return of the Second & Third liners?

Over the past few days, we saw a bit of recovery amongst the second & third liner stocks. Can this rebound sustain? It is too early to give a definite answer. While we may take comfort in the huge volume traded in the market, we must note that this volume is concentrated in a handful of stocks, which are the usual suspects of syndicated play. For any syndicated play to be worthwhile, there must be sufficient retail players to take up the role of patsies. In my opinion, the rank of patsies has been thoroughly depleted and fresh recruit is hard to come by. As such, this rebound is a tough act & it is running against the clock.

Looking through the charts below, we can see that FBMSCAP has "crossed over" (read: not broke above) its medium-term downtrend line, RR at 12450 on April 6, while FBMACE & FBMFLG are still below their medium-term downtrend line, RR. If these indices can break above their downtrend line, RR, they may stage a recovery similar to January & February this year.

In December 2011, these indices broke below their uptrend line, SS and drifted lower in a downtrend line, R1-R1. Once they broke above R1-R1 in January, they rose until they hit the underside of the earlier uptrend line, SS. FBMSCAP managed to break above uptrend line, SS, while FBMACE & FBMFLG tested uptrend line, SS & reversed course.

In March this year, FBMSCAP, FBMACE & FBMFLG broke below the uptrend line, S-S1. They have been declining in a downtrend line, RR. Can FBMACE & FBMFLG join FBMSCAP & break above their immediate downtrend line, RR at 9520 & 4720, respectively?

Chart 1: FBMSCAP's daily chart as at April 17, 2012 (Source: Quickcharts)

Chart 2: FBMACE's daily chart as at April 17, 2012 (Source: Quickcharts)


Chart 3: FBMFLG's daily chart as at April 17, 2012 (Source: Quickcharts)


Kevin Soon said...

Hi Alex ,

Any idea why MahSing is sliding amidst improving EPS?

Thanks said...

Interesting turn of phrase with the word "patsies". This is the old "greater fool" approach to investing. An investment can, in theory, always go up, as long as there is a greater fool to sell it too. However, when the market runs out of fools to flip to, the whole thing comes crashing down - look at housing in the States!
real asset investment

Alex Lu said...

Hi Kevin Soon

the divergence between historical earning & price movement would suggest that analysts & investors are expecting future earning to decline.

Chartwise, MahSing has good support at RM1.90-1.95. It tested this level a few times this April. A break below RM1.90 would be bearish, while a break above RM2.05-2.10 could be bullish.

Alex Lu said...


To be sure, we do not know yet who are the greater fools - those on the trading floor or those hanging from the ceiling? However, some of the plays are starting to look "hurried" and the noise that I heard sounded somewhat desperate.

I'm getting the feeling that this is the stage where "infanticide" may happen. By that, I mean the syndicate will start to play out those members just outside the core group. Once you decimate this important layer of players (what I would call the "conduit"), the play would weaken substantially & it would eventually collapse. This is especially true if the overall market is weak.

Anonymous said...

Hi Alex

Can you comment on Faber? Its 6 month interim concession is going to expire on 28 Apr. Could it secure long term concession with government?

Fundamentally, Faber currently trade at PE of 10x, and is in net cash position of 45sen/share. Faber also trade cum dividend of 8sen now, give rise to gross yield of 5%.

b said...

canone has been fairing great in Q1 2012. with the rise in price. some would wonder what will hapen to Kianjoo. whats your take on kinajoo now adays said...

Hi Alex:

Your point about the syndicate core vs. non-core is true. In the West, we have as the core Goldman Sachs and some of the top hedge funds and traders. Maybe - MAYBE - Morgan Stanley too. In the financial crisis, clearly Citi was outside of the core. Goldman balanced their long plays with short plays on mortgage backed bonds (MBS); poor Citi, though, waited too long and was on the losing end of Goldman's short hedges!! Goldman is completely amoral and will screw anybody, even its own clients - I hope these types of nefarious practices will not spread to markets like Malaysia, but I suspect it will. Cheers, GreenWorld

Alex Lu said...

Hi b

Something id cooking in Canone & Kianjoo. Technically speaking, both stocks have turned bullish. However, they hit a strong resistance yesterday & pulled back sharply at the close. This could set the stage for a price consolidation. If whatever that prompted this upswing is still 'operating or intact', then we may see another upswing.

Alex Lu said...

Hi hng

Faber is one of the most tricky company listed on Bursa. I have very little faith in its management and I think you should be equally wary of them.

If you want to trade this stock, I would advise that you use technical analysis strictly. Ignore all the stories about the company. Based on TA, Faber has good support at its intermediate uptrend line at RM1.55-1.57. It has strong resistance at RM1.68-1.70 & then at RM1.88-1.90.

Alex Lu said...


I am very happy to meet someone who follows what's happening to the global financial market. Please continue to comment & share your thoughts with me & my readers.

b said...

thanks for the input