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.