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Thursday, September 27, 2012

Telcos are poised to move higher

Digi has broken above its recent high of RM5.05 yesterday to close at RM5.12. At the close of the morning session, it gained RM0.13 to close at RM5.25.


Chart 1: Digi's daily chart as at September 27, 2012_12.30pm (Source: quickcharts)

The second telco that has a breakout is Axiata. It broke above its recent high of RM6.30-6.32. It is up only 2 sen now (trading at RM6.36).


Chart 1: Digi's daily chart as at September 27, 2012_12.30pm (Source: quickcharts)

TM has yet to break above its recent high of RM6.08.


Chart 1: Digi's daily chart as at September 27, 2012_12.30pm (Source: quickcharts)

Maxis is still in a short-term downtrend line with resistance at RM6.90. At the end of the morning session, it gained 7 sen to close at RM6.87.


Chart 1: Digi's daily chart as at September 27, 2012_12.30pm (Source: quickcharts)

Based on the overall strength of the telcos (in a poor market), I believe that the breakout in Digi & Axiata is a signal that this sector is due for a move to the upside.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Axiata, Digi, Maxis & TM.

Wednesday, September 26, 2012

Astro IPO priced at a demanding multiple!

Astro Malaysia Holdings Bhd (‘Astro’) will be relisted on our exchange soon. This IPO will involve the listing of 5.248 billion Astro shares on October 19. On Page 244 of the Prospectus, we can see the Financial Information for the company.

You will see the following financial data:
1) Astro’s 1Q2013 revenue increased by 8.6% to RM986 million as compared to RM908 million. Gross Profit increased from RM386 million to RM401 million but Pre-tax profit declined from RM263 million to RM172 million. Proft after Tax had similarly dropped from RM196 million to RM123 million.
2) EBITDA margin, Pre-tax Profit margin & Net Profit margin all declined. EBITDA margin dropped from 39.2% to 34.7%; Pre-tax Profit margin dropped from 29.0% to 17.4%; & Net Profit margin dropped from 21.6% to 12.5%.
3) Astro’s FY2012 revenue increased by 6.1% to RM3889 million as compared to RM3664 million. Gross Profit dropped marginally from RM1664 million to RM1652 million. Pre-tax profit declined from RM1091 million to RM864 million. Profit after Tax had similarly dropped from RM827 million to RM630 million.
4) EBITDA margin, Pre-tax Profit margin & Net Profit margin all declined. EBITDA margin dropped from 37.4% to 36.4%; Pre-tax Profit margin dropped from 29.8% to 22.2%; & Net Profit margin dropped from 22.6% to 16.2%.
5) The Annualized Basic & Diluted EPS for FY2013 are 10.4 & 9.3 sen, respectively.
As such, Astro IPO priced at RM3.00 apiece is valuing the stock at a PE of 32 times. That is very demanding valuation and the only way that you can justify that is if the company can grow at a very fast pace, say 20% or higher. We will have to see whether that is achievable.

When I studied the Maxis relisting in 2009, one of the areas that I looked at was how much higher is the new company (Maxis 2009) being priced at via-a-vis the value of the company when it was delisted (Maxis 2007). In the case of Maxis, we learned that “Maxis 2009 is valued at 18.5% higher than Maxis 2007”. If we do the same comparison for Astro, we would have Astro 2010 valued at RM8.5 billion (here) as compared to Astro 2012 valued at RM15.744 billion- a whopping 85%-increase in value!

As John Hussman has stated many times, if you buy a stock that is trading at high PE, then that investment will give you a poor return. In the case of Maxis, growth has picked up after its listing. Will the same happen for Astro?

HWGB- a light-bulb moment?

On September 24, Ho Wah Genting Bhd ('HWGB') proposed to acquire a 51%-stake in Myled Opto Technology Sdn Bhd from three individuals, for RM1 million. Myled Opto's business principally is in the manufacturing of solid state lightings (SSL) and light-emitting diodes (LED) lightings. For more, go here.


Today & barely two days later, HWGB announced that MyLed Opto has secured contracts valued at RM800 million from Japan's Kirutorisu Tech and Atotis Co Ltd, marking the company's venture into the Japanese vending machine market. For more, go here.  

My initial thoughts/questions on the above news are:
1) What is the connection between solid state lightings (SSL) and light-emitting diodes (LED) lightings on the one hand and vending machines on the other hand? True, many electrical appliances require lightings, why not vending machines! Nevertheless, two contracts valued at RM800 million must be a coup!

2)  Why would two Japanese companies rush to give the contracts to Myled Opto? The most plausible explanation is that HWGB is very well-connected; thus, it can land these contracts (unlike the previous management of Myled Opto). However, if you look at the existing businesses of HWGB- trading, manufacturing of wires & cables and tin mining- and its financial performance todate, it is difficult to see where this skill set lies in the company.
3) Assuming Myled Opto is manufacturing the lightings to fulfill the contract, the fact that HWGB paid only RM1 million for  a 51%-stake in Myled Opto would suggest that the acquired company is in a financial weak company. Any manufacturing concern with factory & production equipment cannot be worth so little. The big question then would be how HWGB can mobilize the resources to complete these two contracts. For that. let's look at the accounts.
 Based on HWGB's financial statements for QE30/6/2012 (here), we can see that HWGB's current ratio was slightly below 1 time. Its cash reserves was quite large at RM13 million but so is its short-term borrowings which stood at RM59 million. Its gearing ratio stood at 0.75 time. 

For the 6-month ended 30/6/2012, HWGB incurred a net loss of RM7 million on a revenue of RM106 million. Of its three divisions, two (Manufacturing & Mining) lost money while the last one (Trading) made a small profit of RM304,000 for QE30/6/2012.

Based on the above, I have serious doubt as to the above news items. I am glad to note that the market shares my sentiment on these news & reacted appropriately. HWGB rose to a high of RM0.34 in early trading, has since retreated back to RM0.33 (a gain of only RM0.005). I feel strongly that HWGB should be AVOIDED.


Chart: HWGB's monthly chart as at Sep 25, 2012 (Source: Quickcharts)

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, HWGB.

Tuesday, September 25, 2012

Scomi- no longer an ugly duckling

Two Suitors?

Scomi has just announced that it will do a private placement of some 10% of its paid-up capital would be made to IJM. In addition, IJM will subscribe for RM110 million worth of zero coupon 3-year Redeemable Convertible Secured Bond to be issued by Scomi. This news came hot on the heal of the news that Abu Sahid of the Maju Group has emerged as a substantial shareholder in Scomi with a 8.75%-stake. News of Abu Sahid's interest in Scomi first surfaced in early September when the market learned that Siew Mun Chuang had amassed a 5.3%-interest in Scomi. Siew is closely linked to Abu Sahid. How will Abu Sahid & IJM work together with the existing major shareholder, Shah Hakim Zain? Abu Sahid, with interests in steel production & mining (including a stake in Australia-listed Avalon Mineral Ltd), could be keen in Scomi's Oil & Gas business while IJM could be interested in Scomi's subsidiary, Scomi Engineering Bhd. Are they going to work together or are they going to carve up the group?

Scomi's Restructuring

In February, Scomi announced a corporate restructuring, which would see its oilfield services businesses and those of Scomi Marine merged under a new, full-fledged integrated oil and gas marine and drilling services provider. When merger has been completed, Scomi will make an Offer for Sale of its Scomi Marine shares. The proceed from that sale will be used to pare down the group’s debts. As at 30/6/2012, the group has short-term borrowings of RM711 million & long-term debt commitment of RM387 million.  

Scomi venturing into Oil and Gas Exploration and Production 

Scomi is believed to be the front runner for two risk-service contracts (RSCs) to be awarded by Petronas for the Tembikai and Cenang marginal fields off Peninsular Malaysia. These two fields with contracts valued at between US$200mil (RM620mil) to US$400mil (RM1.2bil) each. It is said to be partnering an Australian company, Cue Energy Resources Ltd, for this bid. Cue Energy is an oil and gas exploration and production company with a presence in South-East Asia and Australasia. 

Technical Outlook

Scomi has finally put in a decent rebound after declining continuously since May 2009. Its immediate resistance is at RM0.40 and thereafter at RM0.45 & RM0.55. Its immediate support is at RM0.30.



Chart 1: Scomi's monthly chart as at September 25, 2012_3.30pm (Source: Quickcharts)

IJM's Possible Angle

I believe IJM's interest in Scomi is to get a slice of the action in the monorail market. For more on the monorail project, go here. Combining that with its strong engineering background, IJM can offer a complete solution to the transportation problem faced by many cities in the developing & emerging nations.

IJM- A Patient Chess Player

While I see potential in a tie-up between IJM & Scomi, the fruit of this marriage may not happen immediately. That's because IJM is a patient mover. If the management team in IJM & Scomi can work well together, things can happen very quickly. If not, IJM will bid its time. A clear example is how IJM bought a 25%-stake in KEuro at 28 sen apiece for RM33.1 million in 2005. IJM Corp said at the time the purchase was influenced by its interest in KEuro’s concessions to build the West Coast Expressway (a highway stretches for 316km from Banting, Selangor to Taiping, Perak) and its 50%-stake in the Canal City, a 1,900-acre development near Kota Kemuning in Shah Alam. 

Today, the West Coast Expressway project & the Canal City development are about to kick off. IJM's shareholders will thank their management for their strategic move to take a stake in the troubled KEuro seven years earlier for a token sum of RM33.1 million.



Chart 2: KEuro's monthly chart as at September 25, 2012_3.30pm (Source: Quickcharts)


Chart 3: IJM's monthly chart as at September 25, 2012_3.30pm (Source: Quickcharts)

Which is a Better Bet?

Looking at the chart of KEuro & IJM, there is no doubt that one would have been better rewarded if he/she had bought into KEuro in 2005, instead of IJM. On the same basis, it would be better to invest in Scomi & wait patiently for the full potential of the group to be realized.

Monday, September 24, 2012

CPO prices may remain depresssed for a long while


One of the basic principles of economic model is that the market functions well in determining price by matching supply and demand for any good or service so that the supply of and the demand for the good or service will be in equilibrium. This is illustrated by a simple chart (Chart 1), where the demand curve is red while the supply curve is green. The logic behind the demand curve is simply this: as the price increases, the demand drops. At the same time that the price increases, the supply increases. However, there is a limit to the increase or decline in demand or supply. No matter how high is the price of rice, we still need to consume rice as it is a staple diet. No matter how high is the shipping rate, we still have to charter a ship to transport our export. Conversely, no matter how high is the price of rice, the farmer cannot increase that supply significantly until next year when he would plant more paddy. The same goes for the shipping companies as the number of ships available is limited at that moment in time. They could order more ships to fill the demand but there will be a time lag.


Chart 1: Supply & demand curve in equilibrium

In 2007, the demand curve for CPO shifted to the right [see Chart 2] due to increased demand for CPO for use in biodiesel fuel and also from increased demand by consumers in China & India (a result of improved living standard). As supply curve remained stationary, CPO prices shot up and broke above the USD600 (or equivalent to RM2000) per tonne [see Chart 3].


Chart 2: Demand curve shifted to the right 


Chart 3: CPO Prices, in USD per tonne (Source: Mongabay)

The period of super-normal profit induced many plantation companies to open up new land for cultivation of palm oil. Due to time lag, where oil palm trees can only start to produce FFB after 3-4 years (while the more productive age is above 7 years old), the increase in oil palm estate land did not make a dent in the price of CPO for the past few years.

However, as the tree begins to reach the age of 7th year, the FFB output should increase significantly in the next few years. This increase will result in the supply curve shifting to the right. This shifting of the supply curve will result in a new price equilibrium with prices dropping back.



Chart 3: Supply curve shifted to the right

Some may argue that the demand by consumers in China & India are still strong. And, so is the demand for use in biodiesel. However, this additional demand has been factored into the demand curve and the increase (if any) will be marginal and this would not represent a shift in the demand curve. As such, I do not foresee CPO going back to the heyday of RM4000 per tonne. In fact, I believe there is greater likelihood of CPO dropping further to possibly RM2000 per tonne.

In fact, if you read analysts' reports, one of the argument made to buy a plantation stock is that more oil palm estate will be reaching maturity or reaching the more productive phase over the next few years. When this event happens- and there are many companies that are poised to enjoy increased output- wouldn't the increased supply of CPO result in lower prices. My experience in rubber glove sector in late 2010 (here) and the shipping sector in late 2007 (here) taught me something- when everybody increased their capacity to benefit from super-normal profit, that sector will eventually suffer a sharp drop in prices and abysmal profit. I believe that we will see this in plantation sector. The best way to profit from this peak price scenario is to sell off the productive assets. Maybulk sold off most its ship in 2007-2008. CBIP sold off its plantation assets or investment in early part of the year.

Friday, September 21, 2012

Genm- dragged down by Genting

In August, I posted about a negative signal in Genting- the cross-under of the 20-month SMA line by the 10-month SMA line- that could lead to a prolonged downtrend for that stock. Genting is now trading at RM8.60- lower than the low of RM8.70 recorded on September 6. This means that Genting's slide is likely to continue.

The sell-off in Genting has even affected the performance of Genm. That stock broke above its intermediate downtrend line last week and in the past 3 days, Genm has almost surrendered all its gain. It will soon test its long-term uptrend line at RM3.35.


 Chart 1: Genting's weekly chart as at Sep 21, 2012_4.00pm (Source: Quickcharts)

 
 Chart 2: Genm's weekly chart as at Sep 21, 2012_4.00pm (Source: Quickcharts)

In fact, if you look through the names of the losers, they are the who's who of our exchange. These heavyweights, which had featured prominently among the gainers for the past few months, are now under selling pressure. I fear that we are about to see a price top in the market. A price top follows a momentum top in the market. After a price top, the market is ripe for a prolonged decline.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Genting & Genm.

Harison to test its uptrend line

Malaysian Custom has issued Harison with a 14 days' notice to settle alleged unpaid duties and sales tax or face legal action. With this issue returning to the forefront, Harison will encounter selling pressure. Technically speaking, Hariosn is still in an uptrend line. If it breaks the uptrend line support at RM3.00, the next support levels will be at the horizontal lines at RM2.70, RM2.40 & RM2.10.


Chart: Harison's weekly chart as at September 20, 2012 (Source: Quckcharts)

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Harison.

Thursday, September 20, 2012

Haio- top-line dropped but bottom-line improved

Results Update

For QE31/7/2012, Haio's net profit increased by 12% q-o-q or 33% y-o-y to RM10.3 million while revenue was up 20% y-o-y but dropped by 12% q-o-q to RM61 million. All 3 divisions- MLM, Wholesale & Retails- suffered a q-o-q drop in revenue. Unlike the other 2 divisions, the wholesale division experienced increased pre-tax profit due to lower operating expenses and higher profit margin from sale of patented medicine products & duty-free items.


Table 1: Haio's last 8 quarterly results

Chart 1: Haio's last 30 quarterly results

Valuation

Haio (closed at RM2.02 yesterday) is now trading at a PE of 11 times (based on last 4 quarters' EPS of 18.26 sen). At this PE multiple, Haio is deemed fully valued.

Technical Outlook

Haio will likely to continue to trade sideway between RM1.90 & RM2.10. Beyond that, it will encounter support at RM1.75 & resistance at RM2.35.

Chart 2: Haio's weekly chart as at Sept 19, 2012 (Source: Tradesignum)

Conclusion

Based on fully valuation & unexciting technical outlook, I would rate Haio a HOLD.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Haio.

Market Outlook as at September 20, 2012

FBMKLCI broke its 50-day Exponential Moving Average (EMA) line at 1630 this afternoon. Its next support is likely to be the intermediate uptrend line, SS at 1605. The next support would be the psychological 1600 mark.


Chart 1: FBMKLCI's daily chart as at September 20, 2012_12.00pm (Source: Quickcharts)

If FBMKLCI breaks the psychological 1600 mark, the index may test the 50-week EMA line at 1576. The long-term uptrend line support, S1-S1 is at 1475-1480.


Chart 2: FBMKLCI's weekly chart as at September 20, 2012_12.00pm (Source: Quickcharts)

We will have to wait & see where this correction will terminate. I believe it will probably end at 1600-1605 level before recovery kicks in.

FB- the recovery begins


Facebook (Code: FB) has broken above its downtrend line at USD21.50 last Friday. Yesterday, it broke above its horizontal line USD22.50. With this latest upside breakout, FB is poised to close the gap at USD26.80.

With the breakout of the downtrend line, we are likely to have seen the worst in the selldown in FB. Those looking to invest in this stock can slowly gain entry at the horizontal line USD22.50 (if possible). Those, with higher risk appetite, can consider a trade on the assumption that the stock is set for a rally to close the gap (as mentioned above).


Chart: FB's daily chart as at September 19, 2012 (source: Stockcharts)

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, FB.

Wednesday, September 19, 2012

Japanese central bank announced QE measure


First, ECB announced Outright Monetary transaction (OMT), the unlimited bbuying of 3-year bonds issued by Eurozone peripheral states. Next, Fed chimed in with QE3or as one analyst called it- the Unlimited QE, where Fed will buy bonds until the labor market improves "substantially." At a press conference, Bernanke clarified that the Fed’s “response to economic conditions might be one way in which we could further provide accommodation”; thus signaling that the Fed may adopt even more aggressive measures along the lines of the Evans 7/3 rule or even a nominal GDP target. The Evans 7/3 rule is simply: The Fed won't stop easing until unemployment is at 7% or core inflation is at 3%. And a nominal GDP target is just that, a target for the total size of GDP, something that can be achieved by either raw growth or inflation. (For more on this, go here).


Now, Japanese central bank announced a new JPY10 trillion QE program to prod up its slowing economy. While slower economic growth may be the main reason for the latest QE move by the Japanese central bank but I feel that it could also be driven by the need to suppress any rise of JPY via-a-vis USD & Euro. Are we seeing the start of a beggar thy neighbor policy to devalue the currency to get greater share (or to retain share) of the export market?

This QE measure by the Japanese caused a 1.19-jump in Nikkei today to close at 9232. From the chart below, we can see the index can swing all the way to 10000 if it can surpass the horizontal resistance at 9250.


Chart: Nikkei's weekly chart as at Sept 18, 2012 (Source: Stockcharts)

Cocolnd broke above its horizontal resistance at RM2.45

Background

Cocoaland Holdings Berhad (Cocolnd) is involved in the manufacturing and trading of processed and preserved foods and other related foodstuffs. Its products include candy, canister, cookies, drinks, gummy, hamper, juice, pudding and jelly, snack and wafer.

It is an associate company of Fraser & Neave Holdings Bhd (F&N). F&N acquired a 23%-stake in Cocolnd in 2010 for RM54.6 million (or RM1.38 per share). F&N's CEO explained that the acquisition "provides it with a strategic and synergistic foothold to advance its aspirations to create a regional, world-class food and beverage enterprise". (Note: The stake in Cocolnd owned by F&N has since increased to 27.2%.)


Latest Corporate Development

As Thai Beverage Public Company Ltd ('ThaiBev') has acquired a 30.36%-stake in Fraser & Neave Ltd in Singapore- which in turn owns 56.3% of F&N- ThaiBev is now deemed to have interest in Cocolnd. There are many reports that raised the possibility of ThaiBev making a conditional GO for Cocolnd but I personally do not think this will happen.

Recent Financial Results

The latest quarterly results shows Cocolnd has done very well for 1st half FY2012. For QE30/6/2012, its net profit increased by 48% q-o-q or 73% y-o-y to RM7.3 million while revenue increased by 13% q-o-q or 35% y-o-y to RM58.8 million.


Table 1: Cocolnd's last 8 quarterly results

We can see from Chart 1 below that Cocolnd's top-line & bottom-line have been rising steadily since early 2011. Its profit margin bottomed in QE30/6/2010 & has been recovering steadily.


Chart 1: Cocolnd's last 18 quarterly results

Financial Position

Cocolnd's financial position is deemed healthy. As at 30/6/2012, its Current Ratio stood at 3.8 times, with no borrowings and a cash reserves RM43 million (or,  cash backing of RM0.23 per share).

Valuation

Cocolnd (closed at RM2.46 yesterday) is now trading at a PE of 17.7 times (based on last 4 quarters' EPS of 13.91 sen). At this PE, Cocolnd is deemed fully valued.

A recent CIMB report rated Cocolnd as underperform with a target price of only RM1.84 (here)

Technical Outlook

Cocolnd broke above its intermediate downtrend line, R1-R1 at RM2.20 at the beginning of 2012. Since then, its upside has been capped by the horizontal line at RM2.45. Today, it broke above the horizontal resistance of RM2.45. This means the stock could revisit its recent high at RM3.10.

 
Chart 2: Coclnd's weekly chart as at Sept 14, 2012 (Source: Tradesignum)

Conclusion

Based on good financial performance, healthy financial position & its exposure to the consumer sector, Cocolnd could be a good stock for long-term investment. Its bullish technical outlook could make the case for a trading BUY for the stock but we have to be careful as the stock is now overvalued & the current rally could be brought on by expectation of a GO from ThaiBev, which is not very likely.


Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Cocolnd.

Tuesday, September 18, 2012

CPO- the slide continued



CPO broke below the horizontal support of RM2800 today (see Chart 1). This breakdown was not due to a last-minute selldown. The breakdown happened at the start of the morning trading and it went as low as RM2683 before it rebounded to close at RM2714 (see Chart 2). CPO's immediate support levels are at the horizontal line at RM2700 & then at RM2400.


Chart 1: CPO's daily chart as at September 18, 2012 (Source: iFS.marketcenter.com)




Chart 2: CPO's 30-min intra-day chart as at September 18, 2012 (Source: iFS.marketcenter.com)

The continued slide in CPO (after the breaking below its long-term uptrend line) should be followed by similar breakdown in the Plantation index. Looking at Chart 3 below, the immediate support for the Plantation index is at 8000 but the stronger support is at 6500-7000. If this index drops to the 7000 mark, this would translate to a drop of 12-13% for plantation stocks.



Chart 3: Plantation index's weekly chart as at September 18, 2012 (Source: tradesignum)

Friday, September 14, 2012

US markets charging higher!

Recently, I wrote that US & European markets are pressing against strong horizontal resistance (here). That was based on a look at the charts for DJIA & EUR, the index for European Top 100 stocks.

If you look at the same charts yesterday, you will see that DJIA has broken above the strong horizontal resistance at 13300 (see Chart 1). Similar upside breakout of recent high were also witnessed in other major US indices, such as S&P500 & Nasdaq (see Chart 2 & 3). EUR has yet to break above the 230 level (see Chart 4). The relative weakness of EUR belied the strength of the German DAX, which broke above its strong horizontal resistance at 7200 (see Chart 5).

With these upside breakout, US & German stock markets are expected to rise further. The relative strength of the US markets via-a-vis the European markets was contrary to my expectation.


Chart 1: DJIA's daily chart as at Sep 13, 2012 (Source: Stockcharts)


Chart 2: Nasdaq's daily chart as at Sep 13, 2012 (Source: Stockcharts)


Chart 3: S&P500's daily chart as at Sep 13, 2012 (Source: Stockcharts)


Chart 4: EUR's daily chart as at Sep 13, 2012 (Source: Stockcharts)


Chart 5: DAX's daily chart as at Sep 13, 2012 (Source: Stockcharts)

GENM broke above its downtrend line


GENM broke above its downtrend line at RM3.55. In the past, an upside breakout had been followed by a gain of 40 sen over 1-2 months. Based on this breakout, GENM could be a good trading BUY.


Chart: GENM's daily chart as at September 14, 2012_10.10am (Source: quickcharts)

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, GENM.

CIMB did a V-spike recovery


What a drop! What a rebound! CIMB which broke its intermediate uptrend line recently and did a volte-face and rebound above the uptrend line. It made an intraday high of RM7.73- just 2 sen shy off nearly the strong horizontal resistance at RM7.75.


Chart: CIMB's daily chart as at September 14, 2012_9.45am (source: Quickcharts)

The sharp rebound cannot continue for long. Those who went 'contrarian' and bought at the low price, should consider taking some profit near the strong horizontal resistance of RM7.75. Those who missed buying at the low, should wait for a pullback to the uptrend line support at RM7.50.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, CIMB.

Thursday, September 13, 2012

Airasia hit an air pocket!

Airasia plummeted in the past 3-4 days from RM3.40 to an intraday low of RM2.82. The sharp drop was prompted by concern that the new LCC, Malindo could be a threat to its operation. In my opinion, any LCC will take away some business from Airasia. However, we have seen many rivals folded up or struggling to breakeven in this cut-throat business. As such, the selldown in Airasia is excessive, bordering on irrational or emotional.

Technically speaking, Airasia has broken its uptrend line, SS which stretched back to March 2011. That breakdown happened in late August at the RM3.50 level. The past 4-day selldown is excessive in two areas:
1. The volume is equal to that registered in the selldown in August 2011 (denoted as 'A'). Such huge volume would create a vacuum, which allows an opposite move to take place.
2. The drop was also excessive in that the indicators, such as MACD, RSI & ADX, all went plunged sharply. Again, we can see that the last time these indicators moved to such extreme (in September 2011), the stock then enjoyed a rebound (denoted as 'B').

Based on these two reasons, I believe that Airasia could be set for a rebound. The rebound could bring the stock back up to RM3.20-3.30.


Chart: Airasia's daily cahrt as at September 13, 2012_3.00pm (Source: Quickcharts)

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Airasia.

Tuesday, September 11, 2012

Eurozone on the mend?



The recently announced bond-buying plan by ECB (simply called OMT) and the long-awaited announcement of the next phase of unconventional monetary policies by the Fed (simply called QE3) have resulted in a rally in precious metals, such as gold & silver. We can see from Chart 1 below that gold has broken above its descending triangle at USD1670. From Chart 2 below, we can see that silver has broken above its 18-month downtrend line at USD32. The upside breakout in gold prices could signal the continuation of the prior uptrend; thus, a good trading BUY on gold.


Chart 1: Gold's weekly chart as at Sep 10, 2012 (Source: Stockcharts)


Chart 2: Silver's weekly chart as at Sep 10, 2012 (Source: Stockcharts)

When you compared DJIA and the Top100 European stock (as represented by EUR Index), you can see that the upside on US stocks is limited unless the index can break above the strong horizontal resistance at 13300. On the other hand, EUR has broken above the 18-month downtrend line at 220- which may signal the end of the intermediate downtrend. If EUR can break above the strong horizontal resistance at 230, this index could start on its upleg. While both US & European stocks need to overcome strong resistance, the fact that US stocks are trading near its recent high while European stocks are recovering after a sharp drop, would mean that European stocks could present better investment opportunity for investors. See Chart 3 & 4 below.


Chart 3: DJIA's weekly chart as at Sep 10, 2012 (Source: Stockcharts)


Chart 4; EUR's weekly chart as at Sep 10, 2012 (Source: Stockcharts)

Finally, I have appended below the charts for USD & EURO. When Eurozone problem was at its height, investors shifted from EURO to USD. We can see the uptrend in USD & the downtrend in EURO. Over the past 6-7 weeks, these currencies had corrected substantially. We can see that USD had broken below its uptrend line while EURO had broken above its downtrend line. As the European nations re-commit themselves to EU to resolve the Eurozone problem, I expect EURO to continue to strengthen.


Chart 5: USD's weekly chart as at Sep 10, 2012 (Source: Stockcharts)


Chart 6: EURO's weekly chart as at Sep 10, 2012 (Source: Stockcharts)

While it is too early to call the end of the Eurozone crisis, we have seen that the market had reacted positively to the latest development. This could result in some portfolio re-balancing, away from the high-flyers (like US & Malaysian markets) to European markets. One particular group of stocks that I am quite worried about are the high-flying consumer stocks, which were steadily bought up by foreign funds. Some profit-taking has just begun.

Some blue chips are breaking their uptrend line


Many blue chips are testing their uptrend line now while a few are breaking below it. I have appended below a few blue chips that have just broken their uptrend line; thus increasing the likelihood that they may slide further. This will put pressure on the index.


Chart 1: HLFG's daily chart as at September 11, 2012_11am (Source: Quickcharts)


Chart 2: Tenaga's daily chart as at September 11, 2012_11am (Source: Quickcharts)


Chart 3: CIMB's daily chart as at September 11, 2012_11am (Source: Quickcharts)


Chart 4: KLK's daily chart as at September 11, 2012_11am (Source: Quickcharts)

FBMKLCI may test the 1600 psychological support soon

FBMKLCI broke the more gradual uptrend line that stretches back to October 2011. That uptrend line, SS support is at 1611. See Chart 1.

Chart 1: FBMKLCI's daily chart as at September 10, 2012 (Source: Quickcharts)

With the above breakdown, the index will soon test the psychological 1600 mark. A break below that level should send the index to the longer term uptrend line at 1550-1570. See Chart 2 below.


Chart 2: FBMKLCI's weekly chart as at September 10, 2012 (Source: Quickcharts)

There was an article in the Edge this week which raised the specter that the stock market has peaked. It is a brave man who dared to say that the market has peaked but braver still if he dared to say that the market will go into a sharp downturn. However, there are amber evidences that the global economy is slowing down, with many countries staring at the prospect of technical recession soon. It is a sad commentary that the prospect of a recession has given rise to a perverse hope that the central banks would act to loose up monetary policies or in some cases, engage in unconventional measures to prod up assets value. In the Eurozone, we have seen ECB announcing Outright Monetary Transaction to acquire unlimited bonds of distressed countries in order to press down the yield of bond. We will have to wait & see how much of central banks' machination would be enough to overcome market forces. Until then, our market will have to find its level.