O&G stocks could be a BUY

In the current market correction, one sector that investors may look at is the Oil & Gas sector. The main reason is that Crude Oil price is making new high (see Chart 1 below) and this sector should see more activities in the years ahead.


Chart 1: Crude Oil October 2007 daily chart as at September 17 (courtesy of Barchart.com)

Below, I have appended the daily charts of 3 stocks that have corrected back to their respective uptrend line support or marginally below it. The violation of the uptrend lines in August for all 3 stocks are noted but the uptrend lines are drawn above the August troughs. The uptrend line support for Kencana is at RM2.25, for Ranhill at RM2.80 and for Sapcres at RM1.75.


Chart 2: Kencana's daily chart as at September 17 (courtesy of Quickcharts)



Chart 3: Ranhill's daily chart as at September 17 (courtesy of Quickcharts)



Chart 4: Sapcres' daily chart as at September 17 (courtesy of Quickcharts)

CWs over KLCI & HSI as at September 12, 2007

On Monday (10th September), a new CW over KLCI was listed. It is called KLCI-CC. It is a European-style Cash-settled CW over the Kuala Lumpur Composite Index (‘KLCI’). This adds to the 2 existing CWs over market indices, i.e. KLCI-CA & HIS-C1, which are European-style Cash-settled CWs over the Kuala Lumpur Composite Index (‘KLCI’) & the Hang Seng Index (‘HSI’), respectively.



Based on lower premium & longer maturity period, I prefer KLCI-CC over KLCI-CA.

CWs for HK stocks as at September 12, 2007

The updated CWs valuation table for Hong Kong stocks is appended below. CWs, which traded at premium of less than 4%, are highlighted in green.



With the Hang Seng Index ('HSI') making a new high yesterday, I expect the above CWs to rise further. Nevertheless, it is noted that the sharp rise of HSI has been propelled by gains in share prices of Chinese-owned companies listed on the Hong Kong Exchange. The rise of these stocks is akin to a bubble and one must exercise caution in buying into derivatives (such as the above CWs), which is a highly leverage trade. In a bullish market, the gain can be very handsome. On the other hand, the losses can be very substantial in the event of any correction.

UMcca's latest results did not disappoint

Background

In March, I have posted on UMcca being a laggard amongst the plantation stocks (go here). The stock did not rise very much; just about 30% from RM3.50/60 to RM5.90 as at yesterday.

Yesterday, the company announced its results for QE31/7/2007, which shows a healthy jump in both topline & bottomline. Net profit has increased by 34% q-o-q or 160% y-o-y to RM17.1 million while turnover has jumped by 54% q-o-q or 80% y-o-y to RM46.6 million. While the company has attributed some of the improvement to higher investment income & higher contribution from associates, I believe the bulk of the improved net profit flowed directly from higher contribution from its plantation business. In a recent report, TA Securities opined that UMcca "had entered a virtuous cycle of multi-year double-digit earnings growth... due to a significant increase of landbank reaching maturity as well as progressive rise in FFB yield, thanks to a favorable palm tree age profile".



TA Securities has selected UMcca as its top pick for the plantation sector with a target price of RM6.78. This target is the sum of the value assigned to UMcca's plantation business (about RM6.78 per share) and the value of its stake in the listed Pacmas as well as its cash in hand. S&P, which used the same method of valuation, has assigned a much lower value of RM3.66 per share for the plantation business & thus arrived a target price of RM5.70 for the same stock.

Technical Outlook

The stock is still in an uptrend line, with support at RM4.90-5.00. Its horizontal supports are at RM5.30 & RM5.55 while its resistances are at RM5.90 & RM6.15.

Chart : UMcca's weekly chart as at September 11 (courtesy of Quickcharts)

Conclusion

Based on its good financial performance, UMcca is still a good buy for the medium-term. Good entry level will be about RM5.50-60.

Dow is poised to do a "Test of the Low"

After last Friday sharp fall of 250 points, Dow appears poised to do a "Test of the Low". I think a revisit of the August low just below 12500 is possible but fairly slim. It is more likely that the upcoming test may see the index testing the psychological support of 13000 and even the strong horizontal support of 12800.

How do we know whether the market is likely to "pass" this test & recover? You can look out for 2 indicators, i.e. the MACD & the Slow Stochastic for signs of possible recovery. In the June-July 2006 correction, we can see these 2 indicators had shown a bullish divergence before the index did a recovery. Maybe, we can see the same signs again. Otherwise, the index is deemed to have recovered from this test when it surpasses the 13500 level recorded on September 4.


Chart: DJIA's daily chart as at September 7 (courtesy of Yahoo Finance)

Gold's uptrend to accelerate

During the recent turmoil in the stock & bond market, some investment managers talked about the advantages of investing in gold as safe haven asset. Looking at the 5-year chart of gold/USD, one would be pretty surprised by how well this safe haven asset has been performing in the past 5 years. In fact, gold is in a medium-term uptrend (5 years' timeframe), with support at USD665. In the intermediate term (1-2 years' timeframe), it has been consolidating its sharp price run-up from October 2005 to May 2006, when it hit a high of USD730 per troy oz. The consolidation pattern exhibited is the three fan lines pattern. On September 4, gold has broken above the third fan line at the USD680 level, which confirms this bullish setup and signaling the beginning of the next price run-up for gold.



Chart: Gold's 5-year weekly chart as at September 6 (courtesy of Bullionvault.com)

I do not wish to speculate on why gold is rising again. There are as many possible reasons as there are conspiracy theories on why gold should or should not be out-performing other assets. I believe that the buying of gold by central banks in order to diversify their reserves holding could be the main driver for the performance of gold. The buying could come from the Chinese central bank as well as central banks from the Middle East & other oil-producing countries (such as Russia), which are sitting uncomfortably on too much USD.

There are two ways of buying gold in Malaysia. You can buy them physically (such as gold coins) or invest via gold saving passbook. The latter method would dispense with the need to hold the physical gold but the mark-up by the selling institution would be higher. From Maybank2U, we can see that the mark-up for buying & selling of gold coin is about 3.33% while for investing in gold via the passbook is 7.87% (go here).

Tranmil may have bottomed but...

When I posted on Tranmil in August (go here), I have recommended that we do not jump the gun in buying this stock until the confusion regarding the company's accounting irregularities has been resolved. In line with the mantra "Let the market tell us when it is safe to buy", I shall now re-examine the outlook for Tranmil from the technical perspective.

From the chart below, we can see that the selling has slowly dried up in the past few weeks. In the last 3 days, the stock has experienced a sharp price run-up accompanied by huge volume. Its share price rose from the low of RM3.34 on September 3 to a high of RM5.40 recorded yesterday (September 6). The share price tested the upper channel resistance of RM5.30, but was unable to stay above that level. It closed at RM5.20 yesterday. As at 10.00 am this morning, the share price has pulled back to RM4.90. Is it a good time to buy Tranmil?


Chart : Tranmil's daily chart as at September 6 (courtesy of Quickcharts)

To be safe, we should buy only when the stock's current downtrend is clearly over. That would be when the share price has surpassed the upper channel, currently at RM5.30. Some may have formed their opinion that the worst is over for Tranmil & wish to buy on weakness. In this case, you may buy on a pullback of 33-50% of the recent advance (from RM3.34 to RM5.40) at about the RM4.38-5.06 level. Technically speaking, that is not advisable. A stock in a trending mode is likely to stay in that mode, notwithstanding what the company's management or market analysts may have said about its potential.

Market Outlook as at September 4

Looking at the chart below, I come to the conclusion that our market is poised to commence on its upward movement very soon. This is based on the following observations:

1. The MACD indicator, which had done a positive crossover earlier, has now crossed above the 'zero' line, where uptrend would normally pick up the pace;
2. The stochastic indicator has entered the 80 level, where again uptrend would normally pick up the pace; and
   
3. The index has broken to the upside of the short-term downtrend line (marked as 'a1-a1').

Two more signals may be needed to confirm the beginning of the next uptrend. There maybe provided by the end of today's trading. These would be the surpassing of the current rebound reaction high of 1292 recorded on August 27 (marked as 'A1') as well as the crossover of the slower 20-day SMA by the faster 10-day SMA. At the time of posting this piece (about 10.50 am), the KLCI is at 1293 level. Today could be a very interesting day.

Chart : KLCI's daily chart as at September 4 (courtesy of Quickcharts)

CWs over KLCI & HSI (error noted)

I have made a mistake in the computation of the conversion premium for HSI-C1. The error is due to the non-conversion of the RM price of the CW to the HK$ equivalent. After adjusting for this error, you can see that the HSI-C1 is actually trading at a premium of 5% (as compared to a slight discount of 0.4%). The table below gives the mid-day prices for today and the premium of the 2 CWs for indices [i.e. Hang Seng Index ('HSI') & KLCI] currently listed on our exchange.



I like to apologize for any inconvenience caused by this error.

Asiafle's net profit increased in QE30/6/2007

Background

Asiafile Corporation Bhd ('Asiafle') is involved essentially in the manufacture & trading of stationery products.

Recent Financial Results

The company has just announced its results for QE30/6/2007. Its net profit increased by 40.7% q-o-q or 12.4% y-o-y to RM10.3 million while turnover has increased by 26.7% q-o-q or 34.8% y-o-y to RM43.6 million. The increased turnover was attributable to big increase in its sale to oversea markets such as the US & Europe.



The company's financial condition is very healthy as its overall operation is essentially financed by Shareholders' Funds. As at 30/6/2007, its Total Assets stood at RM218 million while its Shareholders' Funds amounted to RM194 million. Borrowing was very negligible.

Valuation

Based on its closing price of RM5.60 as at Sep 3 & last 4 quarters' EPS of 48.2 sen, Asiafle is now trading at a PE of 11.6 times. This PE will go down if the company continue to grow its export markets.

Technical Outlook

From the monthly chart below, we can see that Asiafle is in a long term uptrend with support at RM5.50 level. Horizontal support can be seen at the RM5.00 level as well.

Chart 1: Asiafle's monthly chart as at September 3 (courtesy of Quickcharts)

Conclusion

Based on good financial performance & condition as well as nice technical set-up, Asiafle is a good stock to buy for the long-term.

CWs for HK stocks as at August 31, 2007

You can see my updated list of CWs of Hong Kong stocks below. Due to the closure of our market on Friday, the CWs has not accounted for the gain in many of the underlying stocks. As such, you would notice that a few of the CWs' closing prices are a discount to their fair value (highlighted in green) and might see a healthy jump on opening bell this morning.

Hang Seng Index surpassed its July high

As noted in my earlier post (go here), the Hang Seng Index (‘HSI’) might go higher due to the influx of funds from Mainland China after the Chinese authority has allowed locals to invest in the Hong Kong stock market. On August 31, the HSI has even surpassed its July high after its first attempt failed on August 28. I believe that there is a good chance that the HSI may go higher despite what looks like a near vertival climb since the index made its recent low of 19387 on August 17.

Chart: HSI's daily chart as at August 31 (courtesy of Yahoo Finance)

One way of gaining exposure to the HSI is to buy HSI-C1. From the table below, we can see that the HSI-C1 , which closed at RM0.335 on August 30 & did not trade on August 31 due to the public holiday, is now valued at a discount to the underlying index. As such, the HSI-C1 will likely to open today with a big jump.

After Dow, is Shanghai next?

The Shanghai Stock Exchange Composite Index ('SSECI') is at it again; taking out another psychological level. This time it has passed through the 5000 mark as effortlessly as it did at the 4000 mark. Nevertheless, it is worth noting that correction occurred before or after each occasion when the SSECI tested & broke above such psychological level. When it pushed above the 4000 mark in end May, the SSECI corrected from its high of 4300 to a low of 3400; giving up 900 points. The 3400 mark was the long-term uptrend line support for the SSECI at that point in time. If a similar correction were to recur at the present 5000 mark and the SSECI were to pull back to its present long-term uptrend line support of about 3900-4000, the drop may surpass 1000 points! While talking heads may say that such corrections are healthy for the market, I wonder how the investors on the ground will take it. Good luck, Shanghai.


Chart: SSECI's daily chart as at August 27 (courtesy of Yahoo Finance)

Market Outlook as at August 27

The KLCI has recovered back substantially after its recent sharp selloff, which saw the index testing its long-term uptrend line at the 1150 level (see Chart 1 below). Further recovery in the KLCI is possible, but the pace may be slower than that witnessed in the March-April period.

Chart 1: KLCI's weekly chart as at August 27 (courtesy of Quickcharts)

There is a possibility that the current re-bounce may take a short breather soon. From Chart 2 below, we have the daily chart of the KLCI overlaid with 3 moving averages. i.e. the 5-day SMA, 10-day SMA (with +2% displacement) and 10-day SMA (with -2% displacement). During the March-April re-bounce, the KLCI rallied off the low in 6 consecutive days & hit the 10-day SMA (with +2% displacement) before correcting down to the 10-day SMA (with -2% displacement). The present re-bounce did hit a high of 1292 yesterday [which is marginally above the 10-day SMA (with +2% displacement)]. If the market were to soften a bit ahead of the long weekend (which includes a Friday holiday for Independence Day), there is a good chance that it may pull back to the 1240 level [ which is the 10-day SMA (with -2% displacement)]. If this were to happen, you should use to opportunity to add to your position.


Chart 2: KLCI's daily chart as at August 27 (courtesy of Quickcharts)

Who Knew?

This may tickle your funny bone...


via Misstrade

CWs for HK stocks as at August 23, 2007

The recent decision by Chinese authority to allow mainland investors to buy Hong Kong stocks has given a big boost to the Hong Kong stock market ( go here). The Hang Seng Index has been rising in the manner of "runaway gaps" (see the chart below). It may soon re-tested its July 24 high of 23,534. A failure to break above this level may lead to a minor correction in Hong Kong stocks. You may use this correction to accumulate some CWs of Hong Kong stocks.



Chart: HSI's daily chart as at August 23 (courtesy of Yahoo Finance)

Since my last update, we have another 3 new CWs listed, i.e. CCCC-C3, CHMOBIL-C4 & HKEX-C3. These are all non-collateralized European-style cash-settled CW issued by CIMB.



The new CWs are highlighted in blue & those CWs with attractive premium (of less than 4%) are highlighted in green.

Evergreen's net profit keeps rising

Evergreen has just reported its results for QE30/6/2007. Its net profit increased by 13.2% q-o-q or 128% y-o-y to RM32.1 million. This was achieved on a turnover of RM192.6 million, which represents an increase of 15.5% q-o-q or 48.6% y-o-y. Based on the first 6 months' EPS of 12.6 sen, Evergreen can potentially hit a full year's EPS of 25.2 sen. At a closing price of RM1.42 (as at August 21), this stock is trading at a PE of 5.6 times. That's very attractive.



Evergreen has dropped quite sharply in the current market sell-off. From a high of RM2.16 on May 24, the stock hit an intra-day low of RM1.16 on August 17. It broke its uptrend line support at the RM1.45 level. Below that, it can find support at the horizontal support line of RM1.30 & RM1.15.


Chart : Evergreen's weekly chart as at August 20 (courtesy of Quickcharts)

Based on good financial performance & attractive valuation, Evergreen is a good stock to buy for the medium-term.

Market Outlook as at August 14

The failure of the market to stage a convincing rebound over the past few days reflects the current market weakness, which is likely to lead to further selling ahead. Looking at Chart 1 below, you can see that the KLCI's next supports are at 1285 (February high), 1250 (psychological level) & 1220 (longer-term uptrend line support). Similarly, if we look at the 2nd Board (see Chart 2 below), it is heading towards its uptrend support at the 100 level. On the other hand, the Mesdaq index (see Chart 2 below) is already at its uptrend support at the 128 level.


Chart 1: KLCI's weekly chart as at August 14 (courtesy of Quickcharts)


Chart 2: 2nd Board's weekly chart as at August 14 (courtesy of Quickcharts)


Chart 3: Mesdaq's weekly chart as at August 14 (courtesy of Quickcharts)

DJIA nearing the 13000 level

DJIA dropped 208 points overnight to close at 13029 level with more signs that the weakness in the housing market is beginning to impact consumers' spending. In addition, hedge funds are facing withdrawal demands from their investors at a time that the assets are hard to sell.

The sharp fall in DJIA has brought the index almost to the psychological 13000 level. A break of this important level could see the DJIA testing the next horizontal support of 12850 (the February high) and thereafter the long-term uptrend line support of 12750. The latter support should hold but a break of this level could well signal the beginning of the bear market for Wall Street; something that is hard to imagine just 2 months ago.



Chart: DJIA's daily chart as at August 14 (courtesy of Yahoo Finance)

Tong Herr reported higher net profit for QE30/6/2007

Tong Herr has just announced its results for QE30/6/2007. Its net profit increased by 30.5% q-o-q or 122.5% y-o-y to RM24.7 million while its turnover increased by 25.3% q-o-q or 118.7% y-o-y to RM139.5 million.

Tong Herr’s last 4 quarterly result is substantially better than the preceding 4 quarterly result, with net profit jumping 196% from RM28.1 million to RM83.1 million, while turnover more than doubled from RM207.8 million to RM442.8 million. EPS has also jumped from 33 sen to 98 sen during these periods.

Based on its closing price of RM5.85 for today & last 4 quarter’s EPS of 98 sen, Tong Herr is now trading at a PE of 6.0 times.

Technically, Tong Herr is still in an uptrend line, with support at RM4.80. In addition, it has a strong horizontal support at RM5.00.

Chart: Tong Herr' weekly chart as at August 8 (courtesy of Quickcharts)

Based on cheap valuation & good technical outlook, Tong Herr is a good stock to invest in for the long term.

Market Outlook as at August 8

On August 1, I posted that the KLCI might be testing the immediate uptrend line support at 1340 and, if that support failed, the index might drop to test three horizontal supports, i.e. 1320, 1300 & 1285 (go here). The market has in fact broken through the uptrend line & dropped to a low of 1290 before staging a convincing rebound yesterday.

If the March recovery is a guide, the current rebound may still have some way to go before exhaustion. I think the resistance levels will likely be at the second recent gap-down level of 1333, the psychological level of 1350 and the first recent gap-down level of 1374.

Is the worst over? The answer is probably. The damage to the technical picture is significant enough that one has to be very careful at this period of time. Those who are underweighted in equity may accumulate slowly now or when the market does a pullback to re-test the low.

Chart : KLCI's daily chart as at August 8 (courtesy of Quickcharts)

CWs over KLCI & HSI

On Friday (3^rd August), two new CWs over indices were listed. They are KLCI-C1 & HIS-C1, which are European-style Cash-settled CWs over the Kuala Lumpur Composite Index (‘KLCI’) & the Hang Seng Index (‘HSI’), respectively.

KLCI-C1 was issued at an IPO price of RM0.215 with exercise ratio of 500:1; exercise level of 1,380 and maturing on 3^rd March 2008. On the first day of listing, the KLCI-C1 dropped to RM0.165, reflecting the lower level of the KLCI (which closed at 1,335.42). At that price & index level, the KLCI-C1 was trading at a premium of 9.5%.

On the other hand, HSI-C1 was issued at an IPO price of RM0.40 with exercise ratio of 2,500:1; exercise level of 23,000 and maturing on 29^th February 2008. On the first day of listing, the HSI-C1 dropped to RM0.26, reflecting the lower level of the HSI (which closed at 22,495.17). At that price & index level, the HSI-C1 was trading at a premium of 5.1%.

CWs for HK stocks as at August 2, 2007

Since my latest update on July 19, there were 3 new CWs listed. They are CHALCO-C1, CNOOC-C1 and SHENHUA-C1. These are all non-collateralized American-style cash-settled CW issued by OSK. They were listed on July 31.

Since the last posting on this subject, we have also witnessed a very sharp correction in global equity. Being a leverage instrument, these CWs suffered severely. Once this correction is over, you would likely see a sharp rebounce in these same CWs.

The updated CWs valuation table for Hong Kong stocks is appended below. CWs, which traded at premium of less than 4%, are highlighted in blue.

Second- & third-liners could be due for correction

If one were to look at the KLCI & the activity in our stock market for the past 2 months, one would notice that the play has shifted to the second- & third-liners stocks. This is pretty much borne out by the 3 daily charts (for FBM Smallcap, 2nd Board & Mesdaq) appended below. Due to the recent weakness in oversea stock markets, all 3 indices had violated their immediate uptrend line. Only FBM Smallcap has recovered above its uptrend line (but it has violated this uptrend line again today). The present weakness in all these indices is signaling an imminent correction amongst the second- & third-liners stocks.


Chart 1: FBM Smallcap's daily chart as at July 31 (courtesy of Quickcharts)



Chart 2: 2nd Board's daily chart as at July 31 (courtesy of Quickcharts)



Chart 3: Mesdaq's daily chart as at July 31 (courtesy of Quickcharts)

Market Outlook as at July 31, 2007

The KLCI appears to have tested its medium-term uptrend line at the support level of 1340 on July 30. Given the continuing correction on Wall Street, I believe our KLCI could re-test this uptrend line again over the next few days. A break of this uptrend line could see the KLCI testing its reaction low of 1320 recorded on May 25. Thereafter, we can expect support from the psychological level of 1300 as well as the KLCI's reaction high of 1285 recorded on Feb 26.


Chart: KLCI's weekly chart as at July 31 (courtesy of Quickcharts)

Digi has just tested its uptrend line

Digi has broken its medium-term uptrend line (in blue) at the RM22.75 level on July 23. Today, it has tested the longer term uptrend line at RM20.00/50 level. If this uptrend line support can hold, this could be a good entry level to this stock.



Chart: Digi's daily chart as at July 26 (courtesy of Quickcharts)

This is a technical recommendation without any consideration of the company's financial performance nor its financial position.

PBA may have a bullish breakout

Background

PBA Holdings Bhd ('PBA') is involved in the treatment & distribution of water for Penang. PBA is regarded by many as the best-managed water treatment and/or distribution company that is listed on the Malaysian stock market. The reason why it is less profitable than the other listed companies is because its treated water is sold at lower rates in Penang than in the other states.

Recent Financial Results

Based on the latest quarterly results for QE31/3/2007, PBA's net profit has increased by 11.2% q-o-q or 45.9% y-o-y to RM11.8 million. The improved profitability was attributed to higher turnover of RM43.9 million, an increase of 3.6% q-o-q or 7.8% y-o-y.

If you compared the last 4 quarters with the preceding 4 quarters, you can see that net profit has increased by 38.5% from RM30.4 million to RM42.2 million while turnover has gained 7.8% from RM162.6 million to RM175.2 million. EPS has similarly increased by 38.3% from 9.2 sen to 12.7 sen.



Current Financial Position

Based on the Balance Sheet as at 31/3/2007, PBA's financial position is deemed sound. Its liquidity position is adequate with current & quick ratio at 1.1 & 0.9 times, respectively. Unlikely others, PBA's Total Borrowings to Shareholders' Funds is very manageable at 0.2 times.

Valuation

Based on the trailing 4-quarter EPS of 12.7 sen & yesterday(27/7/2007)'s closing price of RM1.37, PBA is now trading at a PE of 10.8 times. That's relatively inexpensive for a defensive utility stock.

Technical Outlook

Since making a high of RM2.09 in September 2003, PBA has been in a downtrend. While it appears to have a breakout to upside of the downtrend line at RM1.28/30 level in mid-June, that breakout could not sustain & the share price eased back to find support at the downtrend line (see the 2 charts below). Yesterday, PBA made a big move & broke above the strong horizontal resistance at RM1.35. While the volume build-up has been fairly timid, I believe this breakout of the RM1.35 level could signal a bullish phase ahead for this stock.


Chart: PBA' monthly chart as at July 26 (courtesy of Quickcharts)


Chart: PBA' weekly chart as at July 26 (courtesy of Quickcharts)

Conclusion

Based on the bullish technical outlook and fairly decent fundamental picture, I believe PBA is a good investment for the medium-term. Good entry level is at RM1.35.

DJIA broke its medium-term uptrend line

DJIA dropped more than 310 points overnight on concerns about mortgage & corporate lending markets. The sharp drop has caused the index to violate its medium-term uptrend line at the 13700 level. You would notice that the index rebounded off its low of 13300, which is a strong horizontal support.

The Asian markets have been more volatile in the past few trading days, mirroring the current correction in the US & European markets. Despite greater volatility, most Asian markets (with the exception of the Japanese market) are still tracking their short-term, steep uptrend line. Today's trading could be different. The breakdown in Dow overnight could lead to similar breakdowns across the region. The Malaysian market, which has yet to breakout of its consolidation or waiting phase, may suffer less in term of drop in the main indices but the same may not apply to some stocks which had seen sharp price run-up lately.


Chart: DJIA's daily chart as at July 26 (courtesy of Yahoo Finance)

CWs for HK stocks as at July 19, 2007

The updated CWs valuation table for Hong Kong stocks are appended below. I have highlighted those attractively-priced CWs that are trading at premium of less than 4%. Since the Hong Kong stock market is doing relative better than our Malaysian market, it may be a good opportunity to benefit from this outperformance by 'investing' in these short-term derivatives.

HWL-C1 down on correction for the underlying share, HWL

HWL-C1 is one of those recommendation that I wish I have not made (go here). It was imprudent to call a buy on a stock [or, a CW linked to it] after a very sharp price run-up. From the daily chart below, we can see that HWL is likely to pull back & test its January high of HK$83.00 and, in the process, closing the July 9 gap. If the HK$83.00 support is violated, the next support would be the HK$82.00 level. A recovery from either level would likely lead to a recovery in HWL-C1. If both support levels are violated, it would be advisable to close your position on this CW, if you are still holding it.


Chart: HWL's daily chart as at July 13 (courtesy of HKEX)

This is strictly a technical call without any consideration of the company's financial performance & position.

Maybulk's uptrend to recommence

Maybulk has broken to the upside of the horizontal resistance at RM3.60/62 today. It gained 12 sen to close at RM3.72 for the morning. Volume for the morning session is marginally higher than normal at about 13,000 lots.

If Maybulk can sustain above the breakout level of RM3.60 over the next day or two, this stock's uptrend will continue. As such, Maybulk could be a good trading BUY.

Chart: Maybulk's daily chart as at July 9 (courtesy of Quickcharts)

This is strictly a technical call without any consideration of the company's financial performance & position.

CWs for HK stocks

There has been a few more listing of new CWs for Hong Kong stocks since my last posting in June. I have posted here an update for your guidance. Two CWs in particular are trading at a discount or at very low premium. They are HKEX-C1 and CCCC-C1. The former has been running up since the underlying share has a breakout in the middle of June ( see my post here). CCCC-C1 is a fairly new CW, only listed on July 5. The underlying share, CCCC has been on a strong uptrend since its listing in November last year (traded initially at HK$6.00). CCCC (closed at HK$17.78 today) has gained about HK$7.00 or 65% in the past 1 month alone. The attractive pricing of both HKEX-C1 and CCCC-C1 may reflect investors' cautious stance.



Looking at the above table, there are a few things that I like to point out. They are:

1. For the purpose of computing the premium of the CW, I have used the exercise price stated in RM or RM equivalent. The exercise price highlighted in yellow is as per the Term Sheet. The exercise price stated in HK$ is converted to the RM equivalent at an exchange rate of HK$1=RM0.44.
2. The market prices to be plugged in are highlighted in green. They are the underlying share price, which has been extracted from the HKEX website and the CW price, which is available from the Bursa website. The former will then be converted to RM equivalent at the same exchange rate as (1) above.
   
3. For informational purposes, the IPO price of these CW & the underlying stock code are given. To check on the prices of the underlying share, you need to go here.
   

HWL-C1 could be a good trading BUY

Today is the first day of trading for HWL-C1, a call warrant issued by CIMB for the underlying share of Hutchison Whampoa Ltd ("HWL"). The main terms for HWL-C1 are:

1. Exercise Price: RM34.25 (or HK$77.84, assuming exchange rate of HK$1 : RM0.44)
2. Tenor: 6 months from issue date (June 22, 2007)
3. Exercise Ratio: 10 to 1

HWL share price gained HK$3.40 to HK$86.40 as at 4.02 p.m. today. As a result, HWL has surpassed its recent high of HK$83.00 recorded in January this year. With this bullish breakout, I believe HWL should have further upside (see the chart below). To check on HWL share price, you can go here. HWL's stock code 13.



Chart: HWL's daily chart as at July 6 (courtesy of HKEX)

Based on the breakout of the underlying share, HWL-C1 could be a good trading BUY.

This is strictly a technical call without any consideration of the company's financial performance & position.

Tenaga has just tested its medium-term uptrend line

Tenaga dropped 50 sen to hit RM11.00 at the start of the afternoon session. From the chart below, you can see that the RM11.00 level is both a strong horizontal support as well as the support given by the medium-term uptrend line.

Based on technical consideration, Tenaga is a good trading BUY at RM11.00.


Chart: Tenaga's weekly chart as at July 4 (courtesy of Quickcharts)

This is strictly a technical call without any consideration of the company's financial performance & position.

Shanghai- Another test ...

The Shanghai's SSECI may test its medium-term uptrend line at 3,700-3,750 today. Technically speaking, an uptrend line is likely to hold & provide the staging area for a recovery. SSECI has however exhibited some weaknesses that are worth noting. Firstly, on its recent test of the uptrend line in early June, the SSECI's uptrend line was violated before recovery. Secondly, the rebounce that followed failed to make a new 'high'. Finally, the MACD & Stochastics are both showing bearish divergence. This divergence is noticeable in April to May period, where both MACD & Stochastics were not making new 'highs' while the index was inching higher. And, again this can be seen now as both MACD & Stochastics are inching lower while the index has yet to surpass the early June low.

A break of the medium-term uptrend line support at 3,700-3,750 could lead to the consolidation of the overheated Shanghai stock market.



Chart: SSECI's daily chart as at July 4 (courtesy of Yahoo Finance)