Trading Volume & The Exchange Company

Bursa Malaysia Berhad (MYX1818) is an exchange holding company approved under Section 15 of the Capital Markets and Services Act 2007. It operates a fully integrated exchange, offering the complete range of exchange-related services including trading, clearing, settlement and depository services. Significant portion of revenue of an exchange company is determined by the level of trading activity in both security and derivative markets. Other portions of its revenue include listing fees, others.

In the following chart, I will attempt to demonstrate the relationship between trading volume of FBMKLCI and share price of Bursa Malaysia Berhad. It is possible that the trading volume may serve as leading indicator for the share price of Bursa Malaysia Berhad, as the quarterly earnings of this exchange company will depend on the historical trading volume in the past quarter (prior to the announcement of its quarterly earnings announcement). In a nutshell, if trading volume goes up, this company is envisaged to do well in the coming quarter.

Instead of using the raw trading volume data of FBMKLCI, I have done a simple smoothing process whereby we have compared the 30-day moving median of trading volume against its historical median of trading volume since Jan 2010. There are possible pockets of divergence as the revenue composition of Bursa Malaysia does not solely depend on the level of trading activity (e.g listing fees, etc). Further, the trading volume of FBMKLCI represents the trading volume of the 30-largest market cap listed companies on Bursa Malaysia (i.e excluding mid-small caps). Nevertheless, as shown below, the recent divergence between the share price of Bursa Malaysia and trading volume appears to be relatively significant.

bursa malaysia 1.png

Let me try to quantify the extent of divergence by performing a simple regression analysis -share price of Bursa Malaysia Berhad vs 30D-moving median of trading volume of KLCI:

bursa malaysia 2.png

Based on this simple analysis, it appears that the current share price of $9.96 is relatively higher than predicted share price of $9.47 but it is still within the 95%-confidence band of $8.15-$10.79.

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE STRICTLY 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, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED IN THE ARTICLES.

Week In Review, Nothing New

For this week, there is nothing new about Malaysia’s FBMKLCI index. Still consolidating, support  isstill holding up at around 1,752.

KLCI

What is more puzzling is that FBMKLCI has lagged behind our regional neighbours in terms of YTD performance:

KLCI_2.jpeg

One may wonder what may have caused the relative divergence in performance.

The recent drop in the Malaysian stock market may be attributable to recent sell-out by foreign investors (see: https://asia.nikkei.com/Markets/Nikkei-Markets/ASIA-MARKETS-Singapore-Stocks-Rise-To-Highest-In-2-Months-Malaysian-Equities-Fall).

Foreigners.png

 

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE STRICTLY 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, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED IN THE ARTICLES.

Support Is Still Holding Up?

For week ending 8 October 2017, it appears that FBMKLCI manages to hold up at its support level of 1,752 and more importantly, it is still above its 200D MA.

A streak of losses in preceding week / earlier part of the week has resulted in bargain hunting in later part of this week. This had contributed towards positive rebound, as FBMKLCI closed higher than its 8D EMA with a relatively higher trading volume. Stochastic clearly shows an oversold position.

KLCI 07102017

What could possibly happen next?

Scenario 1: Uptrend

Ideally, the following has to happen:

  • The index trades above the other MAs and EMAs;
  • The index is able to break resistance point at 1,793; and
  • All MAs and EMAs are sloping upward

Scenario 2: Downtrend

  • The index trades below support level of 1,752;
  • 50D MA breaks below 200D MA; and
  • All MAs and EMAs are sloping downward.

Scenario 3: Range Bound

  • The index continues to trade in range of between 1,752 and 1,793;
  • All MAs and EMAs will flatten; and
  • Trading volume will be low.

 

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE STRICTLY 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, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED IN THE ARTICLES.

Hello October

G’day everyone. This shall be my very first posting for the month of October. Many have considered October as ‘month that is filled with bad omens’ since this very month has witnessed numerous historical crashes in stock markets.

Nevertheless, I’m keen to look at one particular long-established company, Hap Seng Plantations Holdings (the Company  is engaged in cultivation of oil palm and processing of fresh fruit bunches carried out in Malaysia).

It appears to be trading in range bound, with its recent marginal uptrend in its 20D EMA. Whether the stock’s momentum will continue, it is dependent on whether it can break the next key resistance point at RM2.73

Hapl_TA.png

There have been pockets of major activities in its trading volume, which may be potentially attributable to recent accumulation in the shares of the Company by Lembaga Tabung Haji:

HAPL_Insiders.png

As shown below, Hap Seng Plantations tends to be ‘less reactive’ to the movements of the CPO. As such, we would expect a generally muted correlation between the Company and CPO.

Hapl vs CPO (multiple graph.png

Strictly For Educational / Illustrative Purposes Only

Based on a simple regression analysis (with R-square at 0.38) between the share price of Hap Seng Plantations and CPO, the current share price (RM2.67) of Hap Seng Plantations appears to be fairly valued if compared to its forecasted value of RM2.61 (with a 95%-confidence band of RM2.14 – RM3.07)

HapL_Oct17.png

We also run a regression analysis between P/E ratio of Hap Seng Plantations and CPO. Although the statistical relationship appears weak, the current P/E of Hap Seng Plantations of 14.17x is not unreasonable if compared to the forecasted P/E of 15.68x (with a 95%-confidence band of 8.3x-23.1x).

HAPL_PER vs forecast.png

As shown in the frequency distribution of the Company’s P/E, the current P/E ratio of the Company appears to be not unreasonable as it is below the mean PE (since 31 Dec 2008).

HAPL_normalitytestPER.png

The above analysis is a simple high-level desktop analysis. One should conduct further research and background study of the Company.

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE STRICTLY 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, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED IN THE ARTICLES.

The American Effect

…Yale’s Robert Shiller (founder of the Case-Shiller Index on U.S. housing prices), who said yesterday that “the U.S. stock market looks a lot like at did at the peak before all 13 previous price collapses,” investors may look at this as another brick in a new wall of worry. (Shiller defines a bear market as a 20% drop in prices, but does not issue a firm timeline for this drop.) ...” read more

How would a bear market in the US affect the FBMKLCI?

Since 2010 (post-GFC), Malaysia’s FBMKLCI has trended in tandem with the positive movements in the SP500 index. Nevertheless, the SP500 index has outpaced the FBMKLCI since 2015, as shown in the comparison charts of 60-day moving median of FBMKLCI and SP500:

KLCI vs SP (median).png

A simple regression analysis is computed between the moving medians of FBMKLCI and SP500, of which an r-squared of 0.54 has been derived:

Regression Results.png

Based on the statistical relationship against the SP500, the FBMKLCI is currently at level below that of the forecast value (based on median) of 1,851 but it is within the 95% upper & lower confidence bands (since Apr 2010 till date):

Forecast Median KLCI_Sep 17.png

The following simple high-level analysis shows the potential & possible impact on FBMKLCI if there is a 5% – 30% drop in the SP500. In this case, the lower band may be potential support zones (assuming the regression relationship holds).

Scenario.png

 

On why I use moving medians for the analysis, it is just one of the possible avenues to part filter the market noises.

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE STRICTLY 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, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED IN THE ARTICLES.

It Is All About The Edge

Little Rocketman has certainly created much anxiety in the financial markets. Further, the planned reversal of QE is envisaged to have greater impacts on emerging markets. Foreign funds have continued (?) to sell their positions on the Malaysia’s stock exchange. The FBMKLCI has suffered a 6-day consecutive decline. Are we in an oversold position?

IntroKLCI.png

If Rocketman decides to launch a missile, there could be more downside risks. Assuming that I would like to take a punt by taking a long position (i.e the KLCI is currently oversold), I may want to consider the following structured warrant:

Warrant Terms.png

Finding My Edge For A Long Position

To re-iterate again and again, I do not have the crystal ball to foresee what is going to happen in the next few days. More importantly, one should understand the trading edge before executing a position. So, what is the edge for this bet?

1.  Support, Support, Support

If you see the following hourly chart, there could be some possible zonal support around 1,761 ( a clear rebound). The next point of defense will be at 1,756.

FBMKLCI.png

2.  Implied Volatility < Actual Volatility

At current warrant price of RM0.05, the implied volatility of the underlying could be in the low range of 3% – 4%. Relatively lower than the actual volatility.

Implied Vol.png

Actual volatility has spiked up to 9.40% , as of today:

KLCI_VOLS.png

3. Seasonality may matter

With FBMKLCI-C3F, I have more than 180 days prior to the expiry of the warrant in March 2018. Based on the following seasonality table:

  • Possible profit taking opportunity in the months of October, December and March which appear to be historically positive (m-o-m basis)
  • Be cautious (with a possibility of taking stop-loss) in historically weak months of November and January

October Seasonality.png

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE STRICTLY 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, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED IN THE ARTICLES.

A Very Long Rectangle

The rectangle chart pattern goes by many names. A rectangle pattern is simply a trendless price channel created when price action reaches two identical, or nearly identical, highs and lows. This is also called a congestion zone, consolidation area or trading range. Ideally, the highs and lows alternate, though this is not necessary. The matching highs form a resistance level and the lows a support level. Price action oscillates between these limits until it finally breaks out either high or low.

Read more: How are rectangle patterns interpreted by analysts and traders?

rectangle1.gif

Duration: Rectangles can extend for a few weeks or many months. If the pattern is less than 3 weeks, it is usually considered a flag, also a continuation pattern. Ideally, rectangles will develop over a 3-month period. Generally, the longer the pattern, the more significant the breakout. A 3-month pattern might be expected to fulfill its breakout projection. However, a 6-month pattern might be expected to exceed its breakout target. Reference

In a nutshell, it is rather unusual for a rectangle pattern to last more than six (6) months. This happens to be the case for Kian Joo Can Factory Bhd, whereby its rectangle pattern has lasted since mid 2013 till present. One should wonder what is going on with this company?

KJCB_Sep 17.png

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE STRICTLY 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, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED IN THE ARTICLES.