Today was a really impressive day. Personally, I got up early, wrote my Chinese homework, revised three years worth of trading understanding, wrote a test well, saw I got an early red envelope from the market or the Chinese Office of Truth, and enjoyed a day in the sun.
So how does this benefit you? Well, hopefully you can look further down on this page for more background on the overall world market pictures and my previous discussions today. Now it’s time for the more specific stuff.
- Highest volume since the first trading day of December, which was also a gap higher, but where the gap itself was most of the market action, now it was continuously traded. However, these volumes were normal compared to the rest of 2011.
- Triangle break upwards was completed today, making price hit the prior highs and today taking them out with a clear increasing volume trend.
- Broke the 126D SMA (half trading year) and will get supported by the same (slowly!) turning upwards within three weeks unless price falls below 19 000 in that period.
- HSI futures up. positive news overseas, so increasing upwards pressure from a momentum perspective.
- Significant resistance at the 20 160 level, with the last four trading days around this level all provided rejections and closes lower.
- Many stocks crossed main resistance levels and caused breakouts, meaning that there is a problem for the index in coming back down as stops were likely triggered on the way up!
There is thus some pretty strong resistance coming in, and with the interplay with the Shanghai Composite and its channel potentially proving highly relevant, it could be good time to guesstimate that a tag of the 20 160 level would potentially correspond with the channel break in Shanghai. I suspect that Shanghai will lead the fundamentals, but it is questionable if Hong Kong won’t lead the technicals as the Hang Seng includes stocks that are not subject to heavy Chinese regulations and still would benefit given the extra incoming business.
How do we profit from this?
Gambling and Casinos:
Galaxy Entertainment, 27:
Caption says a lot, and this is how it has traded since you last saw it. Great trade on my end, could not have done much better! Crossing the 16.00 level would be a rather important move and indicating strong moves in favour of the bulls given the importance of the resistance line and the strong moves around the 126D SMA (half trading year again). Magic-D is looking strongly bullish however, so the thing to watch for here is a consolidation which could sap the MACD and cause it to tumble in.
Furthermore, if the most recent previous high at around 16 is taken out, there is a strong case for a 21/63 EMA bullish cross into a very, very tight exponential quarterly Bollinger which could then explode higher, and lead us straight into the next important test at 18. Trend could then pick up and actually flash to the bulls that it’s time to go in properly and there is also a momentum-chasing mentality factor coming into play in Hong Kong. The 20 level is not as important, but given the increased volumes in the market, and the stock, there is good reason to believe that the HSI triangle break and volume push could send the stock much higher.
Oh, and one more thing. HSBC just gave the stock a target price of HK$30.5, in case you were wondering who else is behind the curve on earnings forecasts and Macau total revenue projections… But then again, a P/E of 16.6 for such a highly levered operation, with increased China demand prospects, and great delivery at both its properties with the flagship slowly coming out of demand-building promotion room rates? Not too far out there. Still, seeing “conservative” HSBC going out and saying +98% is not very common! Given HSBC’s speculation of property expansion announcements, we could also see new positive developments on the news side, allowing the market sentiment to run even further.
My target? End of February – HK$19, April – HK$23, but make your own analysis. The ADX/DMI combo is a bit of a Jack-in-the-Box, but given the MACD signals and the strong moves for the volume, I take it this is one of the best value plays you can get around here.
SJM Holdings, 880:
If you’re wondering, the Grand Lisboa is a 200+ meter tall flower-shaped glistening monstrosity of a skyscraper. MACD is with the bulls, albeit slowly, but at the bottom of the recent intra day ranges we find two trend lines and the 21D EMA, with price getting a halt today just short of the 63 EMA, and cramping Bollinger bands. Any close above HK$13.50 is really interesting and could spark the push for an 11% move into HK$15 at least.
Earnings have however came down for this company, which is slightly somewhat of a bummer. Still, increased visitors coming in during the Lunar Year of the Dragon is good news, and the festivity is already fully booked at all the SJM properties. If my analysis holds and there is a likelihood of any return by mass market gamblers in force, then SJM should profit handsomely, and way better than the current paltry 6%. With any hope, there can be a run-up gradually to 10% to be front ran, which would immediately put P/E at 11.5 rather than 19.1!
I’m targeting HK$15, HK$17 and HK$19 successively. Even the 19 call would put the forecast P/E at 16.7, which I am comfortable with for such a cash-heavy company! On top of that, 1.18 P/S! if there’s any company that can bear a lift, it’s SJM given its extreme coverage and market share in Macau. Exit and reentry will however be winning abilities here.
Sands China, 1928:
This chart pretty much speaks for itself. The caption helps as well, but the massive price action this stock has enjoyed is nothing short of marvelous.
The company arguably has a better business model or properties than most of its competitors, and many advantages outside of the pure gambling-related area, but I still can’t shake the idea that this compasny shouldn’t be this highly valued given its competition. Then again, technicals are technicals, and we have potential bandsurf, MACD going crazy and ADX/DMI not really following through as of yet. Calling this one is tough however since it trades so close to its all-time high and still doesn’t have much in the way of valid momentum comparisons to use with it.
What has been highly valuable though is the increase in valuations coming out of the brokers! I do not necessarily agree with the analysis on fundamental reasons basis (I do not expect domination to occur in favour of Sands Cotai Central, especially with Galaxy’s recent opening and strong performance so far) but that’s me and the rest of the market will be listening eagerly. I’ll simply enjoy any break above HK$25! Still, the financial position is not as good as SJM, but this could be improving over the course of the next year as costs come down and there is more free cash flow available. Be quick, be bold, but be careful! the most worrying sign? the fact that the open is the near-high point of the day, and then closes are consistently lower for a prolonged period of time! Danger danger, but it also means that there’s no rush to buy it early in the morning!
A slightly longer time frame will be used here:
The stock cracked above 5.26, it’s done an absolutely amazing run during the last two weeks of nearly 15%, which is impressive for the world’s largest bank by market cap!
I’ve drawn this triangle before, and I have not fundamentally changed my view that this is a bank that will run, but there are things that makes one wonder. Sorry about this chart only showing 3 years of daily market action, this set of Support/resistance levels at 5.38 to 5.53 run all the way back to December 07. No rush to risk my money if I know there’s maximum another 2-4% until we get into the game again. Quarterly Bollingers initiated surf perfectly fine, but I am still not comfortable with entering in these conditions, I’d rather lever up somewhere else and make 6-10% and then buy the stock back at 5.53 at +3.4% and use the 10+ gearing outstanding warrants on it but that’s just me.
Be careful, but if it does break here, there should be fairly smooth sailing to the 6-level, 6.6 and 6.8 with something akin to head-and-shoulders as the important levels make themselves known. All speculation for the time being however, we still have to beat 5.53!
Just look at that…
I’d say breaking that trend line provides a great opportunity to enter against the next trend line, going HK$13 above the one we just crossed, and risk being fairly minimal as volume looks set to return and we also get the bottom triangle supporting. Quarterly EMA break as well, and massive falling in of the Bollingers, providing extra running ground. Targeting HK$140 to reevaluate, but previous price action with HKEx proves it has a tendency for very strong runs, so breaking the 140 level should send you towards 150 immediately, followed by 165, 180 and 200. This happens very quickly and currently warrants are pricing in 35% implied volatility, for which I think it’s ridiculous if volume returns and lifts trading volumes, which also invariably lifts HKEx. Look closely into the price action of this one and ask yourself if you want to sit that out. As I mentioned in “Me as a Trader” this is a stock that I can pretty much thank for my ability to trade today. I can also thank it for giving me enough cold hard cash in a couple of weeks to attend the Asia Venture Capital Journal Forum 2010.
Do you know what besides the warrant implied volatility is really funny?
That there are extremely many contracts in HKEx on the warrant side, very very few of them actively traded. You can very likely find warrants that have been untouched for who knows how long, and really go crazy with them! It’s one of the few stocks where you can pretty much pick whatever you want since it’ll likely be extremely mis-priced anyway!
And why isn’t all my cash there yet?
My broker wouldn’t let me? All jokes aside, do not go in this week. Volumes not supportive. I’m willing to give up the HK$13 to the HK$140 level because going in afterwards will be much more rewarding from a risk/reward perspective. I’m waiting three more days until after Lunar New Year, but then there will be a dragon ready to roar! Do not underestimate the importance of volumes for the wider index and its relation to the HKEx. Also, the ADX/DMI indication of trend upwards seems to be somewhat fading, and could indicate a kink.
So if you’re not to invest in HKEx just yet, where can you go then for immediately tradeable stocks?
Jiangxi Copper, 358:
One of the more interesting charts out there!
Yes, the trends here are fairly important, and there it is again, that 126D SMA!
Magic-D good, bollingers ready to explode, and I’m ready to target 24 before March and 27 before May! By the way, the recent bottom near 11 is a trend bottom from way back in the consolidation in mid-’09 if you don’t believe trend is everything for this company! Best feature? The jump across the 21 EMA shows that the trend is pretty much up for now, so as long as nothing drastic happens there will be a bull run!
Also, there’s copper…
Bollingers (standard) expanding, which isn’t much of a shock these days. Then there’s that channel in blue, and the triangle break which looks really good, ans also the great action it has given the trends shown here in the past. All very bullish Jiangxi Copper! Magic-D also indicating strength, so just go with it, would be my advice.
Gold – Zijin Mining, 2899:
Again, trends and triangles are important, and the Magic-D is just beautiful! Bollinger expansion in the cards, massive trend broken and the 21/63 EMA cross coming in, with price rocketing off it, and a trend building on the ADX/DMI. Nothing really much to say here that you can’t figure out for yourself, but inital target at 4.00 and then more aggressively towards 4.50 – 4.75. Slight caution (not very much, it’s a weak resistance) at 3.75, but given the fundamental picture with both gold and Chinese growth stories, I have a hard time seeing just what would prevent this stock from retrying the 5.5 highs (+60%!) within this half year. See the start of the chart for the massive 3.75 – 5.5 sprint!
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Now, if you can’t find trades, it’s not my fault! Enjoy!
[Note: Zijin Mining, not Zhaojin. I’m deeply sorry I got this wrong. Language tests and 14hr workdays are bad for me, but it’s still not an excuse to mess up like this, sorry.]