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Wednesday, April 20, 2016

Some Calls That Didn't Work Out

The last 2-3 weeks saw mixed result for my stock calls. Poor stock calls are not desirable and cannot be avoided completely. When I made a call which did not work out, I feel bad for my customers and my readers. Some readers would make sure I get the message, such as this one:



I have taken another look at 2 recent calls that did not pan out. The first one is HSL which is the largest construction company in Sarawak. HSL was expected to secure many contracts for the construction of the Pan Borneo Highway. After it  secured 2 packages from that highway project, the share price rallied to what I thought was a breakout level: the psychological RM2.00. When the breakout happened, I thought it would be the start of its next upleg. Besides price action, the MACD crossed above MACD signal line. Alas, the stock failed to stay above the breakout level and has since dropped back to the 10, 20 & 30-week SMA lines at RM1.90. I think this cluster of support would hold and the stock will probably stage a recovery from here.

Looking back, one could argue that this timid stock had an earlier upside breakout of its downward channel at RM1.95 in January. The good news of its securing 2 big contracts was just enough to push the price up to its 2013 high of RM2.15. At that point, its gun-shy shareholders quickly seized the opportunity to take profit?!!


Chart 1: HSL's weekly chart as at Apr 19, 2016 (Source: ShareInvestor.com)

Next, Sasbadi. This promising educational stock broke above the strong resistance from the horizontal line at RM1.40. The upside breakout of the resistance, which checked the rise of Sasbadi 4 times in the past 9 months, could well be the flag-off for the continuation of its prior uptrend! Well, it didn't happen. On hindsight, one can argue that the poor volume was a sign that follow-through could be a problem.


Chart 2: Sasbadi's weekly chart as at Apr 19, 2016 (Source: ShareInvestor.com)

Looking at these calls reminded me of a conversation I had with one of my businessman clients many years ago. He told me that he didn't like to have bad debts. Who does?! He said, the only sure way of not having bad debts is to be super-cautious. However, when you are super-cautious, you lose business. As a businessman, you never want to lose good business. So instead of comparing bad debts with not having any bad debt, you should weigh the cost of bad debts against the cost of business foregone. The same may well apply to stock trading.

To the above reader wrote in, I like to say thank you for the opportunity to explain my predicament.

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, HSL & Sasbadi.

7 comments:

KL Tan said...

Hi Alex,

For CCK 7035
I've been observing a distribution of treasury shares.
Related parties purchase seems to be on the radar.

Would we expect the share price to move higher once distribution done (in expectations of the bonus shares) or the goreng cum speculation begins only ex bonus.

Thanks.

Alex Lu said...

Dear KL Tan,

I am not sure what's the "plan" for the stock vis-a-vis the distribution. The company was buying its own shares as recently as January and now it is selling off these Treasury stocks. With regards to your earlier question on the impact of a bonus issue on the stock, I can only say that it's generally positive.

CCK expanded slightly last year. FA rose from RM130 mil to RM203 mil (the bulk of it due to revaluation of RM50 mil). In line with the expansion, revenue rose RM451 mil to RM509 mil. Net profit rose from RM8.3 mil to RM13.9 mil. The improved earnings drove the share price higher.

Based on better performance & bonus issue to come, the share price of CCK should be firm.

KL Tan said...

Thanks for the insight.

With regards to getting some wrong calls... you're only human.

No one gets it right all the time.

On other forums, there's this Mr Ooi teik bee getting hammered as well.

Such is life. When you're on top, you're a target.

Alex Lu said...

Hi KL Tan,

Thank you for your kind words.

Chong BoonKee said...

Hi Alex, maybe next time you can put a stop loss in case your call fail...

Alex Lu said...

Hi Chong BoonKee

Thank you. A stop loss should come with every trade. My current practice is to spell out the breakout level where a failure to stay above that level means the trade did not pan out. I leave it to the reader to close his/her position if that happens.

ronnie said...

Dear Alex,

Thank you for sharing your learned views in this fantastic blog. I have been investing for 26 years, you are undoubtedly one of the best. There will always be losers and crackpots taking cheap shots at successful and generous people like you.

Best to ignore them.

Keep up the great work!