Volatility & Stocks Movement

Our assumed tenets about volatility and movement of stocks are as follows:

1. Volatility does not predict the direction of stock movement;

2. When volatility increases, we expect condition to be bearish and vice versa; and

3. When 10D moving average volatility crosses above 50D moving average volatility, this signals increase in volatility and thus will result in potential bearishness for the particular stock and vice versa.

Let’s take a look at how volatility is interrelated with the share price movement of Sapurakencana Petroleum (a Malaysian-listed O&G stock, “SKPetro”):

SKP_1_Vols.png

It is observed:

  • In general, when there were significant increases in SKPetro’s volatility (e.g Oct-Nov 14, Aug-Sep 15, Feb-Mar 16), there were declines in the share price of SKPetro.
  • The relationship (i.e when volatility rises, price should decline) appears weak in 2012-2013.
  • When SKPetro was trading sideways (e.g Oct 13- Sep 14), volatility declined

Volatility analysis is further analysed below, with the plotting of difference between 10D moving average volatility and 50D moving average volatility. As per our assumed tenets, when 10D MA breaches 50D MA (in few occasions shown in the graph below), we saw declines in the share price of SKPetro, in line with a more bearish sentiment / growing uncertainty. 

SKP_2_VolsFrom the above analysis, it is observed that we are currently seeing an increasing volatility for SKPetro (spike in volatility in May 2016), potentially signaling a ‘bearish’ outlook for SKPetro in the short term.

Implied Volatility : What The Market Expects

The following is an extract of currently traded structured warrants (with underlying “SKPetro”):

SKPEtro_iV.png

The future volatility of SKPetro is expected to trend higher, as shown in the above table whereby the structured warrants’ implied volatility are relatively higher than the underlying’s current historical volatility of 33.0%.

Concluding Remarks

It is very important to re-emphasize that the increase or decrease in volatility does not predict the direction of the stock movement. Higher volatility means more opportunities for trading.

DISCLAIMER: ALL ARTICLES CONTAINED IN THIS SITE ARE FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED ABOVE.

Volatility & FBMKLCI (Update)

Historical Volatility: What we know so far

Analysis of historical volatility or statistical volatility shows that in rising prices, volatility tends to be lower as risk or fear subsides. When prices are declining, volatility will tend to increase.

The graph below highlights the relationship between FBMKLCI and its historical volatility (annualised, 30day), 10 day moving average volatility and 50 day moving average volatility.

FBMKLCI_May16_Vols(1).png

As shown above (e.g period : Jan-Feb 2015, Sep-Oct 2015, Feb-Mar 2016), when FBMKLCI declines, the historical volatility increases.Even in the recent selloff in May 2016, we saw a spike in the statistical volatility.

It is important to note that as the 10-day moving average volatility moves above the 50-day moving average, the market conditions are turning bearish. And as the 10-day moving average moves below the 50-day moving average, the market conditions are expected to turn bullish. When the 10-day moving average diverges far apart from the 50-day moving average, the FBMKLCI will experience correction. Currently (in May 2016), we saw the 10D moving average volatility crosses above the 50D moving average volatility, signaling a bearish market condition.

Implied Volatility: What may happen next

Implied volatility is the market expectation of the future volatility. This can be imputed from the traded options. The following table shows the structured call warrants (with the underlying: FBMKLCI) that are currently traded on Bursa and will be expiring from August 2016 onwards:

FBMKLCI_May16_Vols(2).png

It is observed that the average implied volatility from these structured call warrants is 15.8% which is relatively higher than the current historical volatility of 9.3%(as of 27 May 2016). Market expects more volatility in the next few months. Unfortunately, volatility does not predict the direction of the underlying. Based on the implied volatility of the structured warrants, there is 68% chance (i.e based on 1-standard deviation) that FBMKLCI may trade between 1,335.5 and 1,938.9 up to 31 Jan 2017.

 

DISCLAIMER: ALL ARTICLES CONTAINED IN THIS SITE ARE FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED ABOVE.

Sweet Saucer?

Saucer is a technical charting formation that indicates that a stock’s price has reached its low and that the downward trend has come to a close.

saucer

Saucer formations will exhibit very low volume figures at the point when the stock’s price was the lowest.

http://www.investopedia.com/terms/s/saucer.asp?layout=infini&v=5D&orig=1&adtest=5D

Let’s take a quick look at a Malaysian-based sugar producer company – whether its price trend exhibits a saucer pattern.

Company Background – MSM Malaysia Holdings Berhad (“MSM”)

articlesMSM_raw_sugar_1024x5_177115.transformed_0.jpg

MSM was incorporated on 10 March 2011, is Malaysia’s leading sugar producer. It was listed on the Main Market of Bursa Malaysia Securities Berhad on 28 June 2011. MSM operates the sugar business of Felda Global Ventures Holdings Berhad. It produces, markets and sells refined sugar products. The company conducts its business principally through two operating subsidiaries, Malayan Sugar Manufacturing Company Bhd and Kilang Gula Felda Perlis Sdn Bhd (KGFP) which were established in 1959 and 1971, respectively.

Technically Speaking

MSM_Technical

To some extent, the above chart appears to exhibit a potential saucer chart pattern. MSM’s share price has dropped from a peak RM5.40 (back in June 2015) to a bottom of RM4.55 (Dec 2015), with a declining volume towards the bottom. The 50D MA has recently crossed above the 200D MA, signalling a potential upward movement. A saucer pattern will be confirmed once there is a volume breakout (yet to materialise). Let’s look at the fundamental perspective, as MSM’s profitability will depend significantly on global sugar price.

Fundamentally Speaking

We have performed a simple regression analysis between the share price of MSM and global sugar price (in USD/lb) from year 2012 till date (20 May 2016). From a common sense perspective, we would expect a negative correlation to exist between the share price of MSM and the global sugar price as raw sugar is the main cost component of the sugar producer.

The results are summarised as follows:

MSM_regression.png

Key implications:

  1. The statistical relationship appears weak;
  2. RM4.85 appears to be the “floor value” for MSM;
  3. We did not see the “negative correlation” between share price of MSM and sugar price.

Using the above statistical relationship, MSM appears to be fairly valued at RM5.02 vs forecasted value of RM4.98, with a 95% confidence interval of between RM4.68 and RM5.28:

MSM2_ActualvsForecast_May16.png

Analysts’ Target Price

MSM_PT

Concluding Remarks

bf8573b44e18bfa52a81bedc7e23f266.png

Sugar price has trended up recently and this will impact on the profitability of MSM. Nevertheless, for the past few years, the share price of MSM has not moved significantly despite the movements in global sugar price. Technically, a saucer has not been formed for MSM unless there is a strong volume / price breakout. If MSM ever reaches RM4.65 – RM4.85, this presents a potential trading opportunity with a target exit price of RM5.28-RM5.40.

DISCLAIMER: ALL ARTICLES CONTAINED IN THIS SITE ARE FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED ABOVE.

Too Much Divergence?


Too much divergence in YTD movement between Brent Crude and Sapurakencana Petroleum (“SKP”). Potential rebound for SKP  but when?

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Institutional Strength

Lately, the Malaysian hajj pilgrims fund board (a significant institutional investor), Lembaga Tabung Haji (“LTH”) has been increasing its position in Ranhill Holdings Berhad (“Ranhill”), as shown below:

Ranhill_may 16.pngInsiders’ purchases / transactions by substantial shareholders, e.g LTH’s recent purchases will provide price support to Ranhill from further downward pressure due to prevailing negative market conditions. We believe that LTH is currently attracted to Ranhill’s expected dividend yield of in excess of 6.0%.

Technically Speaking

Ranhill_may2016_graph.png

Given its attractive dividend yield, we think Ranhill is currently in “oversold” position (shown in RSI, William%R and CCI), as shown above, as well as it has touched the lower bound of the Bollinger Band. Potentially, one may consider RM1.15 as the immediate profit target price, should Ranhill bounce upwards.

 

DISCLAIMER: ALL ARTICLES CONTAINED IN THIS SITE ARE FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED ABOVE.

May The Parrot Bring You Luck

Company Background / Updates – Berjaya Sports Toto Berhad (“BToto”) (Current price: RM3.03, as of 13 May 2016)

BToto_Parrot.jpg

Berjaya Sports Toto Berhad, through its subsidiaries, primarily operates Toto betting in Malaysia. The company also involves in the lease of online lottery equipment; manufacturing and distribution of computerized lottery and voting systems; and property investment and development activities. In addition, it operates health and fitness centers, as well as offers computer consultancy services. The company was formerly known as Far East Asset Berhad and changed its name to Berjaya Sports Toto Berhad in May 1993. Berjaya Sports Toto Berhad was founded in 1969 and is based in Kuala Lumpur, Malaysia.

Technically Speaking

BToto_Technical.png

Trading range bound with strong support expected at RM2.95 and strong resistance at RM3.40. Some indicators appear to show that BToTo is currently in oversold position. Nevertheless, the crossing of 20D MA below the 50D MA indicates that there could be room for further bearishness.

Fundamentally Speaking

BToto_Fundamental

In terms of fundamental analysis, we impute the required yield by investors based on the 5-year average year end historical dividend yield. The required yield is estimated to be 6.23%.

With BToTo’s stable cashflow profile and dividend policy, we employ the Dividend Discount Model to compute the indicative equity valuation range for BToTo based on assumed annual dividend growth rate which ranges from minus 1.0% to positive 2.0%. The indicative equity valuation range is estimated to be from RM2.67 till RM4.71 per share. At current share price of RM3.03, investors may be expecting BToTo to record future dividend growth rate of between -0.50% and 0.00%.

Analysts’ Forecast Target Price

BToto_Analysts.png

Average target price of analysts is approximately RM3.35, which represents a potential upside of 10.6% to the current share price of RM3.03.

Final Say

Based on this desktop analysis, it is observed that BToTo may present short term trading opportunity based on the range bound of between RM2.95  and RM3.40. Further, it is backed by (i)  its stable cashflow profile and a dividend yield of close to or more than 6.0%; (ii) higher target price by analysts.

 

 

DISCLAIMER: ALL ARTICLES CONTAINED IN THIS SITE ARE FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED ABOVE.

No Deal, What Is Next?

Company Updates – Kian Joo Can Factory Berhad (“KJCF”)

The proposed RM1.47bil sale of Kian Joo Can Factory Bhd’s entire business and undertaking to Aspire insight Sdn Bhd, a company partly owned by tne Employees Provident Fund Board (EPF), has been called off.

This also means that the proposed cash distribution of at least RM3.30 per share to Kian Joo shareholders is off, as returning the cash proceeds to them is conditional on the proposed disposal being completed.

There was a much-publicised but unsuccessful court battle to block Aspire Insight’s takeover of tin can and cardboard carton maker Kian Joo. The length of the court battle may have helped to derail the plan, but the final deal-breaker is a disagreement over the sale’s price tag.

In a statement to Bursa Malaysia on Friday, Kian Joo said it and Aspire had mutually agreed to terminate the business sale agreement (BSA) signed in March 2014 and its ancillary agreements.

http://www.thestar.com.my/business/business-news/2016/04/16/kian-joo-and-aspire-call-off-takeover/

Company website sourcelink: http://www.kianjoocan.com.my/

Technically Speaking

The calling off of the takeover exercise has finally removed the overhang over KJCF’s share price. Upon the announcement, its share price has shot up to as high as RM3.38.

KJCB_TA

As of 11 May 2016, KJCF closed at RM3.15 which is considered as “oversold” (from Win%R and RSI indicators) and further, it traded close to the support area of RM3.10. With a “Hammer” candlestick and 50D moving average crossing over the 200D, there is a potential rebound opportunity. Resistance is expected at RM3.44, which may be potentially considered as immediate target price.

Share price has been falling lately partly, attributable to the recent disposals by EPF. However, the existing substantial shareholder, Dato See has been supporting the company as shown below:

KJCF_Insiders.png

Fundamentally Speaking

KJCF_Fundamental.png

Based on a simple desktop analysis, current indicative equity valuation of KJCF is about RM3.50 per share, which represents approximately 10%+ premium to its current price of RM3.15. Based on assumed 12% annual growth rate in share price, KJCF is forecasted to reach RM3.92 by end of 2016.

Analysts’ Price Target

KJCF_Analysts.png

Concluding Remarks

Short term rebound opportunity, with support at RM3.10 and resistance at RM3.44. Supported by good business fundamentals and higher analysts’ target price. There was also a competing offer earlier, at RM3.74 per share for KJCF. (http://www.thestar.com.my/business/business-news/2014/03/12/spotlight-on-epf-toyota-tsusho-offer-will-be-good-opportunity-for-fund-to-cash-out/).There may be potential concerns in view of the on-going tussles between See Family and Management of KJCF. 

DISCLAIMER: ALL ARTICLES CONTAINED IN THIS SITE ARE FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED ABOVE.