Our market continued to be fairly volatile today as the bulls and bears fought hard trying to determine the market direction. Finally, HSI lost strength and falling US futures brought us to a flat line. STI gained 2 points in the end at 1,702. Volume was a far cry from yesterday at 821.59 million shares valued at $755.12.
STI has a weakening chart. It looks like a correction towards 1,650 is quite possible before it gets more support from the 50-day MA. But I notice the 20-day MA is moving up towards the 50-day MA too. A successful cut above it will probably renew a rally. Therefore, just in case the correction does end there, start collecting already when STI trends towards 1,664. Buy more if the index breaks down towards strong support at 1,600.
For the short-term traders, take note of the counters you are trading during these 2 months especially if they are on cum-dividend (CD) status. Between these 2 months, many stocks on CD status will go ex-dividend (XD). Normally when a stock goes XD, its share price will adjust downwards by approximately the dividend amount. So be very careful not to trade a stock that might be going XD soon and end up stuck, though you will be entitled to the dividends on the declared pay date.
CMT:
Kindly take note that subsequent to the rights issue, tomorrow, the new CMT shares will be deposited into the CDP account of those who subscribed that time. The trading of the new shares will commence on 03/04/2009. As such, it has been observed that CMT share price had been easing down these few days already. I will expect it to come under more pressure once the new shares commence trading. Basically, we will wait to collect CMT on the cheap when it gets pressured down. I will highlight it once I think it is alright to start collecting it.
Straits
I didn't have the time to call up everyone who was interested because things happened too quickly today. So after I have explained it here once more, kindly monitor it closely and jump onto the opportunity if it comes again.
Consequent to the agreement in the deal with its mother company in Australia, Straits Resources Ltd, the Thai energy firm, PTT PCL, will take up a 19.5% stake in Straits Asia at $0.807 per share. Because of this agreement, it created a theoretical floor price of $0.80 - $0.805 to Straits Asia share price. Therefore, it created strong buying interest in the stock at $0.81 and below. By right, the "support" at $0.81 should not
even break because at $0.805 and below, it can be considered as an arbitraging opportunity already. But as today was most probably the end of the contra period for the contra traders, they were forced to dump their holdings, which explained why the $0.81 support broke. That triggered a brief duration of panic and caused traders to sell as low as $0.805. But rationality quickly resumed as bargain hunters rushed in to scoop up at $0.805 and even support $0.81. We also suspect that certain traders might
be rolling over their positions by selling out their due positions, and then buying back again because we encountered the same counterparties when we were trying to buy and sell for different clients.
I have shared my side of my observations. It is up to individuals to decide if they dare to take the leap of faith here in a supposedly low risk opportunity. Of course, do take note that commodities counters like Straits Asia tend to be plagued by heavy trading activities. But not to forget, the 1-year target price by most analysts for this counter is in excess of $1.00.
ES Contracts:
I just like to share a bit more on them. Since their launch in late February, their trading activities are quite muted because like all new products such as the warrants and CFDs that time, they require more time for investors to get a better understanding of them. Secondly, many houses require their existing houses to open new trading accounts in order to trade ES contracts. This hassle creates a barrier for people to participate actively.
Anyway, other than all the advantages I had highlighted previously, because of the lack of investors' understanding in this product, there exist occasional arbitraging opportunity. To quote an example, take a look at the DBS: April09 ES contract. The closing price is at $8.40, just $0.05 below the mother share closing price. Think that there is nothing wrong except for the slight premium in the mother share? There is certainly something quite wrong here because DBS is on CD status now with a declared dividend of $0.14, which will go XD on 14/04/2009. From what I understand, the ES contracts do not pay dividends unless the dividends are more than 5% of the mother share price, which basically means the chances of ES contracts paying dividends are zero.
The person who bought the DBS ES contract probably didn't know this and bought it at $8.40, thinking that he/she will make a gain. In actual fact, he/she will most likely lose unless the market runs up again before he/she closes the position. Assuming all factors remain the same, on 14/04/2009 when DBS mother share goes XD, it will adjust downwards. If we take DBS closing price of $8.45 as a reference here, after XD, it will open at $8.31. And because the ES contract doesn't pay dividends, $8.30 - $8.32 should therefore be the fair trading range for it.
So the poor fellow here got a bad deal without knowing it. For the rest of us here who know such things, we have an edge over such non-savvy investors, especially when things are just starting up.
So are we ready?
Note: Kindly read my first post, About Myself, on my disclaimer. Thank you.
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