Wednesday, April 26, 2017

SEACERA & KPJ: The Tale Of Two Cities

I like to highlight 2 sets of warrants that capture the extreme exuberance among retail players in the market today. The first set is SEACERA-WA & SEACERA-WB.

If you look at the chart for SEACERA, you will conclude that the stock has limited upside unless it can break above the strong resistance from the horizontal line at RM1.30. While lagging indicators like MACD & DMI are positive, leading indicator, RSI, has issued warning of a bearish divergence. Thus, it is premature to be bullish on SEACERA.


Chart 1: SEACERA's weekly chart as at April 26, 2017_3.20 (Source: Malaysiastock.biz)

Not according to the warrants! SEACERA-WB has broken above its downtrend line. The sharp rally has caused both MACD & DMI to turn bullish. Again, RSI shows bearish divergence. Until the recent upside breakout, the downtrend is consistent with a warrant whose conversion premium continued to deplete overtimes as it approaches its maturity. The upside breakout could be due to a price-sensitive event which seems not to be captured by the share price!


Chart 2: SEACERA-WB's weekly chart as at April 26, 2017_3.20 (Source: Malaysiastock.biz)  

Because of the sharp rally in its sibling, SEACERA-WA - due to expire on May 16 & to cease trading tomorrow - managed to rally from RM0.04 on April 13 to a high of RM0.30 on April 21. Even today (the last trading day), this warrant is holding well at RM0.15. You may argue that it is able to do that because it's trading at a 3%-discount to the share. I wonder how many of those gung-ho punters have the mean to fork out RM1.00 to convert the warrant to the share after today!


Chart 3: SEACERA-WA's weekly chart as at April 26, 2017_3.20 (Source: Malaysiastock.biz)
   
Now, let's look at KPJ-WA. This warrant rallied sharply this morning to hit its limit-up price of RM1.11. This seems to be a belated reaction to the rally in the share price after KPJ announced a 1-to-4 share split on April 20 (here).


Chart 4: KPJ-WA's weekly chart as at April 26, 2017_3.20 (Source: Malaysiastock.biz)

With the warrant holding at the limit-up price, you would think that the share, which had rallied earlier on the news of the share split proposal, would have a second wind. This morning, the share did jump up 17 sen to RM4.30. For most of the afternoon session, it has eased back to around RM4.20. Here, at least, you can argue that the warrant is reacting to the share having achieved an upside breakout of its downtrend line. Still, one couldn't help but wonder why the sudden jump in the warrant price.


Chart 5: KPJ's weekly chart as at April 26, 2017_3.20 (Source: Malaysiastock.biz) 

I see the sharp contrast in price performance between the warrant and the share as a sign of extreme exuberance among retail players. As a group, retail players are not bothered by price disconnection. To them, action speaks louder than words. These are men of action, who share the same motto as the SAS: Who Dares, Wins! God blessed them all; for without them, our market will be so dull!

Note: The profile of the warrants are:

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