Genting Likely Test $1.74 Level

The financial markets across the globe have been hit by the powerful quake and tsunami that hit Japan.  And with problems in the Middle East yet to be resolved, extreme selling pressure caused most markets to lose all the gains that were made in 2011 so far.

Genting Singapore is no exception. 

The stock hit a high of $2.35 in Nov last year and is now at $1.88, resting nicely at the lower boundary of the 20 day Bollinger band.  The MACD indicator for this counter is now below its signal line which is a bearish sign.  ADX is also increasing with –DI clearly above +DI.  This shows that a bearish trend might be developing.

Price action wise, the stock re-traced about 50% of its previous downswing from $2.04 to $1.88 before the current downswing brought the stock price back to $1.88.  It is very likely for this counter to drop below $1.88 towards the Fibonacci target objective of $1.74 level.   A stronger support should emerge at the $1.68 region 

Shanghai Market Positive Signs

Shanghai stock market had a series of corrections and rallies for the past 2 weeks.   The index hit a low of 2661 in late January before rebounding to a high of 2994 on 22 Feb.  The index is now testing resistance at current levels.

There are a few positive signs in the current market behavior.  Firstly the index is able to rebound off its critical support at 2681 within one trading session even though it dropped below this support during the correction.  This shows that bearish selling pressure was not as strong as anticipated.  The second positive sign is a rebound off its Fibonacci retracement.  The rebound occurred exactly at the 38.2% retracement.  This usually means (although not 100%) that the index will go on to test its Fibonacci projection level which is at 3122. 

The critical thing now is for the index to go above 2994 level.  If the test of this resistance fails and the index falls below 2884, then all bets are off.

Strength MACD Indicator

We all know that trading volume is a very important factor to consider when doing technical analysis.  For example if a stock moves up on high volume, it usually means more upside in the future because there is more market participation.  If stock price moves up on low volume, there is a high chance that the rally has no strength and momentum is not enough to push the stock higher.

A systematic way of using volume is to use a formula devised by Larry William in his book “The Secret Of Selecting Stocks For Immediate And Substantial Gains”.  The concept is to use the Open, High, Low, Close and Volume to calculate a new indicator.  The formula is given below:

    A = (Close-Open)/(High – Low) * Volume

If A is negative, it means that there is net selling for that day.  If A is positive, it means that the market action is positive for that day.    In order to determine the strength of the buying and selling pressure, we can do a cumulative sum of A and to apply the MACD indicator on A.  I will label this as Strength MACD to differentiate it from the normal MACD based on closing price.

Let’s take a look at how this indicator looks for Singtel.

 You can see from the chart that there are less false signals and the buy and sell signal for the Strength MACD usually comes earlier than the normal MACD charts. 

Property Counter Under Attack

The new measures announced by the Singapore Government to curb speculation in the   property market caused property counters to react negatively on Friday.  With effect from 14 Jan 2011, property owners will need to fork out 16%, 12%, 8% and 4% if they choose to sell their property within the first, second, third and fourth year respectively.  Assuming that a property speculator wants to cash out within the first year of purchase, the property value needs to go up by around 20% in order for the trade to be profitable. 

Property counters voted with their feet down.  Most of them gap down at the open with higher than normal volume. 

In terms of candlestick pattern, Wing Tai and City Dev fared better as both managed to close above their opening price.  If the price is above to go above the high made on Friday, there may be a chance to get a quick profit as the gap starts to be filled.  But with such negative sentiment in the market, it is unlikely that any rally in property counter is sustainable.  The best the bulls can hope for is for the counters to hold on to their support level which is looking increasingly dangerous. 

REIT Yields

CapitMalls Asia is offering $200 million worth of bonds comprising one and three year notes to retail investors.  The yield for the one year bond is 1% pa and for the three year bond is 2.15% pa.  This is better than what you can get from fixed deposits.     If you have a bigger risk appetite, you can consider buying the REITS instead.  The yields from Singapore are generally higher than 4% based on the price as at Jan 6 2011.

Counter	Price as at Jan 6	Current Yield (%)	Forecast Yield (%)
AIMPS AMP Capital Industrial REIT	0.225	9.6	9.24
Ascendas REIT	2.17	6.36	6.54
Ascendas India Trust	0.925	7.24	8
Ascott Residence Trust	1.26	5.83	6.14
Cache Logistics Trust	0.965	7.88	8.88
Cambridge Industrial Trust	0.545	8.99	8.99
CapitaCommercial Trust	1.53	5.03	4.84
CapitaMall Trust	1.98	4.9	5.2
CapitaRetail China Trust	1.25	6.6	6.8
CDL Hospitality Trusts	2.07	4.88	5.27
First REIT	0.74	10.38	NA
Frasers Centerpoint Trust	1.53	5.36	5.69
Frasers Commercial Trust	0.17	6.47	6.47
Fortune REIT (HK $)	3.96	6.09	6.62
India Bulls Property Investment Trust	0.27	8.52	8.52
K-REIT Asia	1.44	4.51	5.35
Lippo-Mapletree Indonesia Retail Trust	0.57	8.25	8.6
Mapletree Industrial Trust	1.07	6.36	7.38
Mapletree Logistics Trust	0.955	6.7	6.7
Parkway Life REIT	1.74	5	5.46
Sabana REIT	0.98	8.81	8.85
Saizen REIT	0.16	1.63	NA
Starhill Global REIT	0.61	6.23	6.56
Suntec REIT	1.43	6.85	6.22

(Extracted from TheEdgeSingapore January 10 2011)

Experts are generally bullish on REITS that invest in commercial properties, industrial properties and those that are focused in the hospitality sector.  So if your fixed deposit is maturing, you have more choices now to earn a higher return.

Double Top and Head & Shoulder Pattern

Chart pattern is used extensively by traders to identify candidates that are likely to make a big move either upwards or downwards.  Traders need to look out for two important patterns in 2011 in order to avoid being hit by a sell down.  These two patterns are the double top formation and the head and shoulder formation

Conditions for double top formation

1. Stock is in an uptrend
2. Forms a high that is lower than the previous high
3. Drops below the valley between the two highs

Conditions for head and shoulder formation

1. Stock is in an uptrend
2. Stock makes a lower high compared to the previous high
3. Stock drops below the neckline between the two shoulders pattern

Note that for these two patterns, the stock price needs to drop below the valley or neckline in order for the pattern to be valid.  Once the formation is complete, the price will usually go down dramatically as these two patterns are closely watched by the bears to identify candidates to short.  

EURUSD Warning Signs

EURUSD is making a comeback for the past few trading days. It has risen above its 20 day moving average which is a positive indication. The MACD indicator is still above its signal line showing that bulls still have the upper hand. But we should not lose sight of the big picture. If you look at the down swing from 25 Nov 2009 to 7 Jun 2010, the currency pair traded from its low in Jun 2010 to re-trace around 61.8% of the complete down swing. This coincides with the Fibnoacci Retracement rule and it still shows that the long term trend for this currency is still to the downside. However, we cannot ignore the fact that the currency is making higher lows and higher highs for the past few months. The danger is for the currency pair to fall below 1.30 level. This will violate the higher high and higher pattern. The 2 day RSI is approaching overbought levels and we will likely see the price testing its 20 day moving average in the next few trading days.