I’ve written extensively over the weekend on the matters of the underlying issues, like volume, regulatory changes, effects of US nonfarm payrolls out on Friday, and the effect this could have in several markets at large. I’ll now try to distill this a little bit and put them into clear recommendations for Hong Kong equities.
Given the battle of sentiment between “things are fine” represented by Asian GDP, worldwide manufacturing data, NFP numbers and so on, and “things are on fire” represented chiefly by Europe, obviously the most bullish case (which seems to be traded right now) is that even if things are on fire, they will get hosed down with massive amounts of liquidity, with the Fed green lighting a path to printing in extended low interest rate policy and inflation targets being a good example of this. On the Hong Kong market, I will assume that the 20 960 line is still important and that high volumes are needed to lift above that, but say that a single day in the coming week kicks in at around the HK$90-100 bn turnover mark, and the sentiment from other world indices after the Hong Kong close could very well lead it higher. The resistance is weaker now, which sounds like a bullish fudge, but mind you, HK$100 bn turnover would be pretty spectacular still. In the light of this, the forecast would be for a rather imminent push (completed this week or next) towards 22 000, or roughly 6% upside. Where do we find upside in excess of that?
Cry “high beta!” all you want, it’s a fair idea, but again, the volume-related stocks, those with more momentum and other fundamentals to back them will be my main plays. Already-broken-out-of-range is also a main idea at the moment. To the meat:
HKEx looks strong, breaking the last negative trend but not making a significant new high yet!
The HK$133 level is broken, the final trend line is crossed, there’s a 21/63 Day EMA cross in the past, and expanding Bollingers looking to set out to surf!
HKEx has been falling steadily on lower volume numbers and lower index values which drains away at turnover, so it has strongly underperformed the index after August. How much is that under-performance? Well, the stock price when the HSI posted the 20 960 level back in August was HK$150! Beyond that, HK$150 is also a hook level (a retracement in a move where the move then continues) from September 2010, so it would on touch give you a good opportunity to move out, wait a day and then rejoin the rally on the third day bottom since hooks tend to repeat. At current of HK$137, you’re looking at 8.3% catch-up just to get to the 20 750 level, so if the big volume move comes in and lifts the index past 20 960 to 22 000, you get the double serving or more for HKEx! Implied volatility is likely to go a little bit higher as well, so there’s quite the reasoning for more trades to be executed in the spring.
Thus, a conservative estimate is the HK$150 level within two weeks. (After the US downgrade it did HK$150 to HK$133 and back in that time!) The baseline would be HK$160-165 in the same time frame given an index cross of 20 960 this week. My most bullish forecast is based on a 20% “volume move boost” kicking in, which tends to happen often in this stock, and thus send it to the HK$170-175 level. Look at the chart and confirm for yourself that this occasionally happens. Greece could throw a wrench in this, but ont he other hand a provided solution would also go a long way for things to improve, and there’s the 8.3% index lagging, which should be caught up with.
ICBC looks less rosy:
Yes, it broke. Yes it’s below the top Bollinger Band (which is expanding relative the bottom). Note though the false breakout, and the need for a full day above the level for anything to happen. Furthermore, some other scary stuff is in the works at the moment.
If you enter now, the seller might very well be Goldman Sachs. (If anyone reading my blog and making the same analysis as me is working on the asset division at Goldman, please help me get a recommendation to a big financial firm. Preferably one that has the flow desk aligned in the same way as the sell side team!) GS tends to sell at a discount, and while the effect might be temporary, look for a track to around HK$5.38 first. Something else that is not entirely unambiguously positive (or negative for that matter) is that Chinese banks will have their dividend payout ratios reduced to shore up capital. Prudent most likely, and might make them stronger, it’s not the end of the world (12.5% of dividend) etc, but short term I really don’t see the news fueling a rally. Clear this and put buying this stock on hold for a week, or if you’re itching to short something, take some solace in making profit at Goldman Sachs’ expense.
There are better plays in the financials short term (ANY Chinese bank! Bank of China and ABC are my top picks) but few that trade so technically clean longer term, and the longer it sits here, the more swing I will get in my high-geared warrant/option strategy when it does finally break either way. Gotta find alpha where I can, and there are few so great providers of that as the stocks mentioned so far!
Resources are in high swing!
Jiangxi Copper has been running for a while!
The chart is pretty unnecessary, just look at my previous mention of it and then imagine about one week worth of trades in the HK$20-21 region. Trend broken!
It has however provided some fairly stiff resistance at HK$21 which is also its October high. Given how copper prices have given pretty good predictions on where this stock will trade, and the NFP numbers gave a good 3% lift to the metal, expect this level to be broken. The next target would then be a fairly immediate break of the HK$23.5 level. Caution should be had though, as the 252 SMA is coming in at around HK$22 and could whipsaw you out if you’re late and then use tight stops. Go early, target 22, exit, snap it again possibly at 21, or simply re-enter in the HK$22-22.5 region.
The next target would be the HK$25 level, where resistance could be stiffer, since it’s representing the August 6th close. Surely, there has been drag factors on the worldwide macro economy, which has not been too kind to copper, but the easing ambitions in China (however light) and good manufacturing numbers worldwide are supportive of both copper and the company as such. One more thing to keep in mind is that the company is heavily exposed to gold where margins are much higher than in copper, mostly because it’s seen as a byproduct from its main activities. Which commodity was it that went up in excess of 10% so far this year?
Jiangxi Copper is a company that deserves to be played aggressively on any commodity-related ramp, and looking back on my Paradigm Shift post, look at the Aussie again and see if you can guess where I think this will go!
Yup. No fat fingers, no messing around, just pure running. The company has received a lot of upgrades recently, which coupled with the downwards trend rejection and a very under-performing company to its produced asset, gold, led a swift swing upwards. The HK$15 level is not terribly technical, but I should not need to mention the bandsurf, the 63 day EMA cross, or the upcoming 21/63 D EMA cross. The 21 Bollinger might be better for these purposes, but it’s a pretty good aligning of the stars as it is, so enjoy what you can of this stock. Calling interim target at HK$16.5 from the September hook-high, and consolidated tops from the 2010-2011 New Years.
After that, this stock is pretty much of a volatile mess, so keep a close eye out for any further ramps in gold, but know you’re playing with fire.
Zijin Mining looks less volatile but still as good!
Not a lot to add here that the chart does not cover. Same story of trend breaks, even adding one to make the longer term momentum look stronger and less impulsive (potentially providing more upside yet not traded in) but then there is the broker downgrades and the management and environmental problems that keep plaguing this stock. If there is one that will have a HKEx-style outbreak in commodities though, it tends to be Zijin!
Trading still needs to overcome the sub-HK$4 prior high, and there is also a very weak S/R trendlne running through that high, the two small shoulder peaks around the head peak at the start of the upper blue line, and the two peaks that occured before that H&S pattern, and the string of bottoms following the shown initial jump. It’s “curvy” so it’s kinda hard to estimate the accurate area to place it in, but somewhere in the HK$3.8-3.9 region is where I’d estimate this line to run.
Regardless, this stock loves H&S patterns, trades triangles to a tee and is backed by one of the best-performing assets of the year so far, so play the inverse head-and-shoulders, an look forwards to trading into at least another dollar on the individual share price this month! I don’t dare call this on a week-by-week, especially given the recent dip in gold prices which was the biggest since late December (but still smaller than the average up-move since on a close-to-close basis!). Top price levels are not that strong, so there’s very little to play off except for momentum indicators, price action and oscillators for a while.
Gambling and casinos:
A general word on what is happening or has happened in Macau for the time being: Brokers seem willing to lead their more-or-less sheepish clients into these trades way after the game started. Sure, you can follow momentum, but rarely has it been easier to call it ahead of time than here. there are negative signals of over-bullishness in this sector appearing though:
- Analysts are saying that one should go in before the earnings reports come in on strong Chinese New Years revenue. Uh… wow… you have all the positive news in the world if you could be bothered to mine your data and you instead choose to speculate on Chinese New Years? I almost hope you invested in Wynn for that reason…
- Everyone is throwing their cheers for the January data, saying that the print was 35% YoY compared to 31% expectations, and 6% MoM and that things look good, and… that’s it. [Censored!] Here’s how you do your analysis: Compare apples to apples instead of casino chips! You all heave yourselves over the Chinese New Years indications like you know what you’re talking about, and can’t even be bothered to select – nevermind calculate – a reasonable baseline? Here’s news for you: Chinese New Years last year was in February. This is also the Year of the Water Dragon (hence falling on Roman calendar January) which is doubly auspicious and positive for spending. OK, we have no Water Dragon Year reference points, or any other Dragon Years for that matter, but lets just compare it to the Year of the Rabbit, which is not terribly bad, auspiciousness-wise. February 2011 gambling revenue: US$ 2.5bn. January 2012 gambling revenue: US$3.1 bn. 25% increase, not 35%! You’d think someone would think this through… I don’t even know what to say about all of this… you guys use the wrong calendar to fish and deduce your data, it’s like I’d apply a Swedish calendar and ask why on earth there isn’t a steep saffron price spike in the US in December! Now, lets calculate to make reporters get closer to a fair number and still look stupid: The Dragon Year sends the Chinese New Year back almost one month. Round to one. Account for annual growth. Find out that the compound monthly growth over 11 calendar months is slightly over 2%, and figure that this compounded to the January data would lead to a 27.6% annual growth, assuming the festival would have been in February instead. It’s tenuous as it assumes a lot of things equal, policies, no auspiciousness differences between rabbits and dragons, no wealth redistributions in China, etc., but from a mathematical standpoint, it’s a fair annual estimation. Assuming disappointment when the same people wonder why the February data is lower YoY, or maybe they will learn to explain it away with holiday effects by then… In the meantime, be cautious.
All time highs reached, traded near HK$29 on massive reports before settling at HK$27.75, good beating of estimates and good data all around. HK$25 resistance is now a thing of the past, and we’re sailing free on hype for the time being. Only go in if you like tight stops over the previous lows and can afford to go in two or three times a week! Not much more to report.
No earnings out yet, but something (a perpetually full casino and tons of visitors for example) tell me that this one will do well off the back of the Galaxy Macau property launch. Good crack of the HK$18 line as well after hooking from HK$18 to HK$17 first, rejecting the Thursday low soundly to create a pinbar formation on Friday, and we possibly good have a quick sailing to the HK$20-21 region. China easing and stock investment encouragement, discussed earlier this weekend, and tax breaks and incentives for small businesses (whose owners are relatively rich, mind you!) and any good Spring Festival data are things to look out for! We broke resistance, and if the HSI goes up 6%, well why wouldn’t the 2-beta stock follow with around 12%?
If we get better cracks in either index or stock, well then that’s a different story, and we could put Galaxy up in the all-time-high stars that Sands are already playing in. Again, keep HSBC’s HK$30.5 call in mind! Also, the August 6th close? HK$19, 5.5% away on the upside! Not as valid here as elsewhere, it then quickly returned to its all-time highs around HK$23, but worth to keep in mind.
Broke out, got smacked hard, and is now lined up at the same level asking for similar treatment.
This time though, we don’t have the breakout drain out where bulls get weary (like, 10% is normally quite a bit in a day), and this stock finds new buyers all the time, as seen from the big wicks on the downside the last three days only to close higher consecutively. This has been without a true 21/63D EMA bullish cross, which comes in tomorrow, and there’s no real band surf initiated given the trend line drawn. My calls for HK$15-17-19 is still intact, but there needs to be a bit of caution around the HK$16 line. Look at the start of the chart near the first trend line pings, and you will find the hook at HK$15.5-16. This subsequently created the basis for the next three lows, and in fact price action around this line is historically very heavy, even though it has no been as actively traded on following the August turmoil.
Questions that this induces include whether you want to tag HK$15 at first, step out and take a less capital intensive option like warrants or options to ride it, hope that it jumps HK$17 on the price action boost, and cash in nicely at HK$19, using the extra cash from there to try to reinvest pure equity. Another play would be to hope for a mild but quick HK$16 overshoot, and go short at HK16.5, assuming things go sour in the world economy. Options then include going long at HK$15 or HK$13, depending on your disapproval of this company’s business model and poor profit margins. If they come in well after Chinese New Years though on the back of greater mass market gaming and -margins (which every analyst swears will happen because of funding difficulties in China for VIP’s but general economy growth and visa relaxations, despite the hurried conversion of tables to VIP/High Roller, and continued out performance by VIP names over SJM/Melco/Wynn) then this is the name to play and you will need to watch any shorts or re-entries closely.
Happy profitable trading everybody!