Is the US Market Rally over?

25 August 2023

This US market correction started around the 1st of August and has been going on for over 3 weeks.  In between,  it has rallied when some major stocks reported better-than-expected earnings.     

For example, the DOW jumped over 1% on 6 August when Berkshire Hathaway Inc. posted record earning results,  beating the estimates.  Again on 23 August, the Nasdaq jumped over 1% when NVIDIA posted its record-breaking earnings and the DOW went up by about 0.5%.    

Unfortunately,  the rally lost its steam the next day after DOW and other US bourses shed their gain.   Nasdaq lost about 2% and S&P and DOW over 1%,  wiping out their gains for the week. 

All-in-all,  DOW has lost a total of about 4.5% from its peak around 1st August. 

Where DOW would be heading?

In the last article on 5 August 2023,  we spotted that DOW has 3 candlestick gaps to cover.   There is also a supporting Trendline T1.  If this Trendline T1 is broken,  DOW will want to go lower.  On its way down,   those candlestick gaps will be covered if the supports S2 @  33,718 or thereabout failed to hold the price slides.

Let's look at the picture of DOW today

 Click picture to enlarge

In this new chart,  we are introducing 4 technical indicators to chart our direction.  These are

a) The Bollinger Band indicator;

b) The 20-day,  50-day,  100-day and 200-day moving average indicators;

c)  The MACD momentum indicator,  and

d)  The Chaikin Money Flow indicator

From the chart,   we saw readily that 

a)  DOW's Candlestick G1 was covered on Tuesday;

b)  DOW has broken the 20-day and 50-day moving average and now resting at the 100-day moving average;

c)  The Bollinger band is still expanding, and 

d)  There were no signs that the MACD had begun to pick and the money was flowing into the market.

With such conditions prevailing,  we are expecting that 

a)  DOW will continue to slide and test Trendline T1 today or next week;

b)  The bulls will put up a fight,  trying to recover lost ground and preventing DOW from testing the Trendline T1.  

c)  DOW to test the support  S2 @ 33,716 If T1 cannot hold the sliding;  

d)  Dow will proceed to cover up the candlestick gap G3 if S2 cannot hold the price slide.  

By then,  DOW would have shed by about 8% from its peak on 1st August 2023.  

5 August 2023

The US market has had a good time for the past 10 months since October 2022 when DOW hit the bottom @ 28,700.   Since then,  the US market has rallied up 18%.  Today,  it is at around 35,000 which is just a few stone's throw away from the all-time high of 36,990 in 2022.    

Now many traders noted that the US market has started to soften, significantly after Fitch downgraded the US Credit rating from AAA to AA+ on  Tue 01 Aug 2023.  They were wondering if this was the end of the rally or if it was just another correction.

 

US Credit Rating Downgrade- A Non-Event

On 24 May 2023, Fitch placed the United States 'AAA' Rating (IDR) on Rating Watch Negative.   This was mainly because the US Treasury said it would run out of money by 1 June 2023.   At that time, Fitch already had a ‘AAA” rating on the U.S. country ceiling.  It said that the US rating would still remain at 'AAA' even when there was a debt default.   However,  Fitch had some negative comments about the high and rising US Debt burden. 

On the other hand,   Analysts at Singapore’s DBS were dead sure that Fitch’s downgrade on the US’s rating was a non-event for the equity market.  They wereprettye sure that the equity market,  going ahead, would be driven by the Corporate earnings, and the prevailing macro conditions.

Wasn’t there a Downgrade in 2011 sending Stocks Tumbling 7%?

There was a similar downgrade in August 2011. That time,  it was S&P who degraded the US's credit rating.   That downgrade caused the S&P500 to lose 7% on a Monday,  8 August  2011,  which was popularly known to be the “Black Monday” in the history of the stock market.   Then there was a debt ceiling crisis during the era of President Barack Obama.  However, the US Government official pointed out that S&P had made an error of USD 2 Trillion error in its calculation.   As a result,  many Analysts were of the view that this S&P downgrade was more or less politically motivated.  

 

Why This Time is Different?

Anyway,  the situation is very different today.  We can see from the following 2 Fred charts that: 

a)   The market liquidity is much better off today as compared to those days in 2011.  Then  the US was just started to introduce QE. They were careful doing it and the liquiditiy run out soon after;

 

b)   The present National Financial Condition has improved and started to ease after the market recovered in October 2022.  Unlike those days in 2011,  the financial condition then was rising at a very fast rate,  just like those days before the 2008 market crash. 

Also,  many traders in 2011 didn’t quite understand the power of Quantitative Easing (QE).  They tended to panic quickly, especially when they had had a wrong time just two years ago. 

The recent Fitch downgrade of the US rating to "AAA" was already speculated in May 2023.  Fitch was just confirming it on 1 August.  Also,  the damages done by the 2011 downgrade were recovered within a week.

Given the above,  we tend to agree with the Analysts in DBS that this Fitch downgrade on the US credit rating is not likely to have a serious impact on the equity market.

 

Technical Analysis

On the technical front,  we are seeing DOW testing the support S1 at 35,100 in the weekly chart.    If this support S1 is bleached,  DOW would want to test the support at trendline T1.  The other support S2 and S3 are shown in the following chart. 

Here is another picture of the technical chart in a daily plot.

 

 Candlestick Gaps

We found 3 candlestick gaps when DOW was making its way up the “ladder”.  These are namely,  G1,  G2, and G3 respectively in the following chart.

We expect these gaps would be filled when DOW were to break below trendline T1.  They are just ordinary gaps.   This is provided the key support S2 cannot hold the price slides.

 

When will the market recover?

We can’t read directly from the DOW’s chart when will the market recover from the present falls but we found both the S&P500 and Nasdaq had already broken their Trendline T1 as shown in the following chart.   This was about a week ago.

From the S&P chart,  we are expecting the price to test the support S1 @ 4,340 which is just a stone's throw away.  It would be the time when DOW is about to test its trendline T1.   We would expect DOW to fill up gaps G1 and might be G2 on its way down.

 

 

SembCorp Announced Profit Surge of 56% for First-Half 2023

 4 August 2023

SembCorp announced a profit surge of 56.3% for its first-half 2023 report.  However,  the market was not excited by this good profit news.  It opened today at a price of S$5.60 and went up as high as S$5.62, which is only 2 Singapore cents up from yesterday’s closing price.  What went wrong?

Possible reasons

1. The biggest profit contributor to the surge is the conventional energy business;
2. The proposed interim dividend is only 5 Singapore cents per share;
3. Technical reasons. 

Profit Contributors

As reported by the StraitsTimes,  the biggest profit contributor is the conventional energy business, These are profits from its conventional power generation.   

As this profit is a recurring profit generated by higher electricity tariffs which may include some profits from fuel hedging,  the traders might have already priced in the earlier pricing.    

As Energy prices have been falling since they reached their peak last May, traders could have expected these earnings from conventional energy businesses will drop in the future.

For information,  JP Morgan suggested SembCorp's price would drop down to S$4.50 when they speculated the electricity tariff would drop in the near future.

Interim Dividends

Many traders were of the view that the interim dividend of 5 Singapore cents was a disappointment.   At a price of S$5.60 today,  it is only about 0.8%.  It is a far cry compared to the 56% profit surge that SembCorp was making in the first half of 2023. 

 

Technical Reasons

Technically,   we see SembCorp’s price having difficulties getting above the trendline T1 in the past few trading days.  It climbed as high as S$5.80 during the day just to find the price dropped below S$ 6.20 by the closing time.  

The price is presently trapped in the horizontal symmetrical triangle waiting for the trendlines to be broken.  It has 2 immediate support,  S1 and S2 as can be seen from the following chart.  Unless there is better news coming out for SembCorp,  it is unlikely that SembCorp’s price will break T1.

 

 

Disclaimer:  This article is for information and educational purposes.   Readers are advised to conduct their own research and study to make their own investment decisions.

Other Articles about SembCorp

SembCorp (U96) Establishing S$5,000,000,000 EURO MEDIUM TERM NOTE

SembCorp Technical Analysis from 4 July to 28 July

SingTel (Z74) 's Performance vs Telkomsel's Performance

4 August 2023

Following Citi's comment on the softness in net profit from Telkomsel would affect SingTel's profit,  SingTel came out to clarify that Telkomsel’s 21 percent year-on-year decline in net profit as reported was caused by fair value revaluation of its investment in consumer Internet company GoTo.   Such revaluation will not affect Singtel’s net profit or underlying net profit. 

It was reported that Telkomsel’s net income for the second quarter ended Jun 30 fell to 5.41 trillion rupiah (S$476.2 million) from 6.82 trillion rupiah.

Technical Analysis

The false news about SingTel's falling profit had caused a candlestick gap (Not adjusted see note) with about 5.5 million trading volume on 2 August.    

The volume is about 3 times the 100-day average,  The gap can be considered to be a normal gap with high trading volume that might take only weeks to cover the gap.  This is because a runaway gap that would take months to cover would normally have a trading volume of more than 4 times the average.  

As the gap is caused by false news,  we expect the gap to be filled in a much shorter time than it used to be.

Note:  The closing price of SingTel on 1 August was S$2.64.  After adjusting for the dividends,  it should be read as  S$2.56.

3 August 2023

SingTel’s price dropped from S$ 2.64 on 1 August to close at S$ 2.46 on 2 August, a drop of about  6.8%.    This is because

a)   It was an Ex-Dividend day for SingTel.   There were altogether 2 Dividend payouts,  one for S$ 0.025 and the other for S$ 0.053.  The total dividend was S$0.078.

b)   Citi has flagged softness from Telkomsel,  its regional associate in Indonesia.

 

SingTel’s Shares in Telkomsel

Telkomsel is owned by Telkom.  Indonesia and SingTel.  Presently, SingTel has a share of 30.5% in Telkomsel under its subsidiary,  Singapore Telecom Mobile.

 

How Telkomsel’s performance will affect SingTel?

According to the 2022 annual report,  Telkomsel has a table showing the following profit and loss for the last 5 years.   

 

We can see that Telkomsel’s net income has slid from Rup 26,160 billion (S$  2.3 billion) in 2021 to Rup 18,367 (S$ 1.6 billion) in 2022.  This is about a 30% drop or a drop of Rup 7.800 billion (S$ 690 million).   

However,  the EBITDA has increased slightly.   As the revenue increase with lower Net Income,  it would suggest that the competition for Telkomsel was quite keen in 2022.  As EBITDA is still growing,  the long-term performance for Telkomsel appears to be on track for better performance in the future.

As the loss of income in Telkomsel will reflect as a loss in SingTel’s revenue,  we expect SingTel’s revenue loss for 2022 as compared to 2021 was only S$210 million (S$690 x 30%).

As SingTel’s revenue for 2022/23 was S$14.62 billion,  this S$210 million loss in revenue was only 1.4% (210/14,620) of SingTel revenue for 2022/23.

 

SingTel’s FY 2023 performance

SingTel,  in its FY 2023 presentation in May 2023 said,

1)   Full-year net profit was up 14% to S$2.23 billion;

2)   Regional associates’ pre-tax contributions up by 10% to S$2.27 billion;

3)   EBITDA and EBIT increased by 3% and 8% respectively;

It would appear SingTel’s earning has not been affected at all by the lower net income of 1.4% from Telkomsel.  

For information,  Telkomsel’s FY 2022 result was reported in December 2022 and SingTel's FY 2023 was reported in May 2023.

Given the above,  we do not expect Telkomsel’s performances will have much impact on SingTel’s performance going ahead.

 

Disclaimer:  This article is for information and educational purposes.   Readers are advised to conduct their own research and study to make their own investment decisions.

Other Articles about SingTel

Technical Analysis for SingTel on 26 July 2023

 

 

SembCorp (U96) Establishing S$5,000,000,000 EURO MEDIUM TERM NOTE.

31 July 2023

SembCorp Industries (SCI) just announced that it has established a S$5,000,000,000 Euro Medium Term Note (MTN)  Programme today and DBS Bank Ltd. has been appointed as the sole arranger and dealer under the Programme.   This MTN is guaranteed by SCI.  Henceforth, SCI’s subsidiaries,  together with SCI  may raise money from this MTN from time to time, subject to certain conditions having been fulfilled.

 

What is the difference between MTN and Bonds?

Both MTN and Bonds are instruments to raise funds except MTN is simple to issue because it is a discrete fund between the 3 parties,  the issuer,  the agent, and the investor.  On the other hand, the issuing of bonds will need a public offering. In the past,   the issuing of bonds had often been perceived as the company was in financial distress.

MTNs are usually sold in small amounts, either continuously or intermittently.

Some companies still prefer to issue bonds because it is more cost-effective;  also,  the bonds allow investment banks to buy the entire issue from the companies and then sell it to the public to earn commissions, etc. The risk of selling is therefore transferred from the companies to the investment bank. 

For more information,  please refer to this article.

 

How will it affect stock prices?

As MTN are like Bonds,  they are instruments of debt.  They will invariably affect stock prices.   But,  the effect of MTN is usually much less than Bonds for the main reason that a public offering of bonds often gives the impression that the company is in distress.   On the other hand, MTN is usually carried out discretely.   Presently,  SCI is only establishing the MTN program.  There are no raising of any debts mentioned.  

The effect may be more only when traders are aware of the real purpose for raising the MTN is not for expansion but for debt servicing. 

 

Examples

When SCI established a S$3 billion Multicurrency Debt Issuance Programme on April 3, 2020,  it caused little or no reaction to the SCI’s prices as shown in the attached chart.  Also,  we have observed no appreciable reactions when SCI or its subsidiaries issued Notes or debts in other periods using this instrument.  

This is also the case when SIA established its $10 billion MTN during the pandemic.  It is only when SIA issued a bond from the MTN that sent the stock price tumbling by as much as 20%

 

Given the above,  we do not foresee that this S$ 5 billion MTN established by SCI will have any material impact on SCI’s trading price at the moment. 

 

Disclaimer:  This article is for information and educational purposes.   Readers are advised to conduct their own research and study to make their own investment decisions.

 

Other Related Articles

SembCorp Technical Analysis from 4 July to 28 July

SembCorp Industries Singapore Technical Analysis

28 July 2023

For the last 2 trading days,  SembCorp’s price has tried hard to recover from its recent fall caused by the termination of Sembwaste’s divestment plan.   The price movement has almost covered up the candlestick gap created by the last fall except it fell short of S$ 0.01 as shown in this attached chart.    

Going forward,  we are expecting SembCorp’s price to range-bounced,  testing either the Trendline T1 or Trendline T2 while waiting for the 1H 2023 results to be announced on 4 August 2023.

 

Technical Analysis

Technically,  SembCorp’s price is trapped in a horizontal symmetrical triangle as shown in the attached chart.  SembCorp’s price can either fully recover from the recent fall if the price can break Trendline T1 or continue to fall for lower lows.  It can even test the various price support lines until it reaches the price when SembCorp first announces the divestment of Sembwaste.  Meantime,  we rexpect SembCorp’s price to go sideways until the 1H 2023 result is announced on 4 August. 

 

Why the Candlestick is not fully closed?

The trading on 27 July had almost closed the candlestick gap except for the gap of S$0.01 which is awestrickening to many traders.   This is because the filling of a gap is just about 1 or 2 keystrokes away.

The only description that could fit SembCorp's trading pattern is the "Downside Tasuki Gap pattern".    

In a Downside Tasuki gap pattern,   the Bears will push down the price so strongly to form a candlestick gap on the first day.   The Bulls will then try to push the price up the next day,   But they failed to cover the gap convincingly.  If the subsequent attempts also failed to cover the gap,  it would mean that the bulls have likely fleed and the price would continue to fall.   

We are now observing and monitoring if this Downside Tasuki Gap is the right trading pattern for SembCorp and if a good SembCorp's 1H 2023 will negate this downtrend.

26 July 2023

Today, SembCorp’s price dropped to close at S$5.46.  This price is near to what we had expected earlier.

The following chart suggested that there is a Support S2 that SembCorp’s price might want to test next. There is also a trendline T2.

 

Will the price continue to fall?

The price drop today is S$0.20 or 3.36%.  Is this price drop done? Has the price drop taken care of the capital gain for the disposal of SembWaste?    

To answer,  it would be good to know what is the “weight” of the disposal deal and how much it will be worth in turn of stock price.  

1)     The CGS-CIMB Target Revision

To start off,  we noticed Business Times has an article report about CGS-CIMB revising its target after hearing about the SembWaste disposal news on 5 June. 

The report said:

a)  CGS-CIMB has upped its price target for Sembcorp Industries 3.36% to S$6.20 from S$5.12 following news of the group’s potential divestment of its waste management business, SembWaste;

b)  The disposal is estimated to have a divestment gain of S$225 million to S$250 million.

In other words,  CGS-CIMB expected SembCorp’s target lifting price to be S$1.08 if SembWaste was disposed of.  The divestment would add some S$250  million as capital gain.  

2)     Converting the Estimated Divestment gain of S$250 million

As the S$250 million is a gain or earning.  It must be converted to share value for comparison purposes.

There are presently 1.7 billion SembCorp shares in existence.

This S$250 million will work out to be S$ 0.147 (250 million/1.7 billion) per share.  The PE ratio on 5 June was 11.9   Rightly speaking,  this S$250 million divestment gain when converted to share price is S$0.147 x 11.9 or S$1.75.  This S$1.75 is higher than the CGS-CIMB’s target lifting price of S$1.08.

Therefore,  if we were to base on CGS-CIMB’s estimation and if there is correction,  we would have to move the final target priceby S$1.08 to S$4.57 as shown in the attached chart.  This target price was close to the price at which the divestment of SembWaste was first mooted on 9 May.  

 

Will the Price Ever Recover?

The answer is definitely a yes. This is because there is a big and glaring candlestick gap of about S$0.16 as shown in the following chart.  This gap was created with a moderate trading volume.  This gap can be considered as a normal gap which will be covered in due time.  

When will the Gap be Covered?

This will be everybody’s guess.   If the price is to drop further in days to come,  we might expect the price to move slowly down testing the various supports.   We also expect the gap will not be covered within a week unless there is other good news coming ahead before or after the 1H 2023 result presentation on 4 August

As the candlestick has already tested and bounded from T2,  the price might want to make an attempt to cover the gap,  failing which it would want to fall back and  retest T2 again,

Disclaimer:  This article is for information and educational purposes.   Readers are advised to conduct their own research and study to make their own investment decisions.

25 July 2023 

After the trading hours, SemCorp announced it would drop the plan to sell its waste management company,  Sembwaste.  

On May 9,  when Reuter said there were interested parties to buy Sembwaste, SembCorp's price went up by 3.1% or S$0.14.  It hit an all-time high.  But when SembCorp came out the next day to clarify that there were no definite deals to sell SembWaste,  the stock price dropped back immediately as shown in the following picture

However,  Straits Times in its news on 10 May added that “the first round of non-binding bids was expected to be early June. This might have given hope to the traders that the discussion would be ongoing,  The price continued to climb.  So,  when SembCorp announced again on 5 June that the sale discussion had begun, SembCorp's price jumped 2.9% to close at S$ 5.34 on that very dayGivenof the above,  we are expecting SembCorp's price to drop around 2 – 3 % tomorrow.

Technical Analysis

Technically,  we found SembCorp having great difficulties crossing over the T1 and T2 to make a higher high.  The traders might be waiting for the result of the discussion on SembWaste disposal.  

Since the disposal of SembWaste has been terminated,  we will expect SembCorp's price to test S1 and maybe S2 too. 

Disclaimer:  This article is for information and educational purposes.   Readers are advised to conduct their own research and study to make their own investment decisions.

8 July 2023

Yesterday,  we saw traders continuing to sell SembCorp shares and ignoring JP Morgan’s unsupported assumption about SembCorp's earnings. This event was reported in the 7th July article.   Yesterday's price action reflected that the traders were expecting a pathetic market to come ahead rather than worrying about SembCorp's performance.  

Yesterday's price dropped to about S$5.12 which is shown as support S2  in the following chart.  The price then recovered more than 2/3 of the morning drop and closed at S$5.31,  just managed to recover the support at S1. This S$5.31 is 1.3% or 7 cents below yesterday’s closing price of S$5.38.

Because the price support at S$ 5.38 had been broken,  SembCorp's market sentiment has now changed from bullish looking to slightly bearish looking.  This is because the price is now closer to the trendline T1 as shown in the following chart.    

If this trendline T1 support is to break for some reason,  we would expect SembCorp to find lower lows,  testing S3 and S4 before going down further. 

On the other hand, we noted the strong recovery of Friday's price movement after hitting the TI trendline.  It could be due to traders wanting and preparing to account for the hefty drop on 6th July caused by the unsupported assumption made by JP Morgan to set its target price.

Going forward,   we hope the support S1 would hold.  If SembCorp can break the resistance R1,  we should see SembCorp attempting to make higher highs.  

6 July 2023

SembCorp's price has broken the rising channel as described earlier on 4 July.  The price fell 4.95% from yesterday's S$5.66 to S$5.39 or a total loss of S$0.28 in today's trade.

What had Happened?

The price took a tumble today because JP Morgan Singapore has set a target price of S4.50.  JP Morgan said that SembCorp:

a)  Is trading at 11 times its EBITDA;

b) Singapore's electricity tariff has peaked.

It claimed that Conventional power generation had contributed about 85% of SembCorp’s earnings,  JP Morgan was convinced that SembCorp’s earnings would be significantly affected when Singapore revised the electricity tariff downwards.  It has also been said that SembCorp’s price has risen more than 70% this year but it added that inclusion as a component in MSCI Singapore is a positive catalyst.

The attached was an extract from Sharejunction as the original JP Morgan report could not be located by googling

For the trading day,  SembCorp’s price dropped sharply after the opening. It reached a low of S$5.30 momentarily just before noon and recovered to close at S$5.38 as shown in the attached.

About SembCorp’s Power Generation Portfolio

It is true that SembCorp’s income from Conventional Power generation like the Co-generation plant in Sakra,  Singapore,  is contributing roughly about 85 % of Sembcorp’s earnings.   The breakdown is as shown in this picture extracted from SembCorp’s annual report 2022.

But SembCorp has under its management a total generating capacity of about 12,600 MW, of which 2,600 MW are renewable energy plants according to this Wikipedia.   For the remaining 10,000 MW of conventional energy plants,  SembCorp only has  only two gas-fired cogeneration facilities (totaling 1,219 MW)  in Jurong Island. Singapore.   

In other words,  the conventional energy plant in Sakra is contributing to a small part of SembCorp’s earnings in 2022.  Therefore,  JP Morgan’s reasoning about SembCorp’s earnings would be greatly affected when Singapore revises the electricity tariff cannot be entirely supported.  

Technical Analysis

The following chart shows that SembCorp’s price has broken the resistance @ S$5.38. This resistance has now turned into support for tomorrow’s trading session.  Therefore,  if SembCorp’s price can stay above this  S$5.38 support S1 from now on,  there is a good chance for SembCorp to scale higher high and make an attempt to cover the candlestick gap G1.

 4 July 2023

SembCorp Industries Pte Ltd (SCI) is one of the favorite hot stocks on the SGX Stock Exchange.  It has almost doubled its price since the end of 2022,  just before China reversed and ended its "Zero Covid policy.

Today,  it has nearly recovered all its previous shines and it is poised to make an all-time high price as shown in this monthly chart

What the Brokers and Analysts Said?

Most broker houses and Analysts have a good rating for SCI with recent target price averages over S$6/= as shown in this picture from sgInvestor.io

The Recent Price Movement

SCI is technically bullish except for the recent fall caused by EMA's announcement about the Temporary Capacity Cap (TCP) on 19 June 2023.  As most investors are not familiar with TCP, they sold their holdings probably on "Sell now ask later" mode to protect their capital.   This caused SCI to lose a total of about S$0.52 or about 9% on 20 June 2023.  When they realized on the next trading day that TCP did not have any material impact on SCI's operation,  the price gradually recovered from S$5.15 to today's S$5.69-S$5.72.

Technical Analysis

The SCI's hourly Technical Chart is shown as follows.

The chart shows that the SCI price has been trapped in an up-rising channel.  It has just broken the resistance S1 which has now turned to become the support.   SCI will likely stay within the price channel until it breaks R1.  As long as SCI's price can stay above the lower trend line (shown in red) and above the support S1,  there is a good chance for SCI to break R1 and seek higher highs.

Disclaimer:  This article is for information and educational purposes.   Readers are advised to conduct their own research and study to make their own investment decisions.