A reader who attended InvestX Congress wrote to say he enjoyed my presentation at the event and that he was especially enlightened as to why I thought SPH made a better investment for income compared to SPH REIT which led to me plonking down more money in SPH's stock. He then went on to ask if this is a good time to buy more of SPH's stock.
Yikes! I am very afraid of questions like this, regular readers of my blog would know.
So, I asked him what did he think the fair value of SPH's stock was? If he were a value investor, he would want to buy it undervalued. Of course, I reminded him that valuation is a subjective exercise and depending on what he focused on, he could come up with different fair values.
Personally, I feel that the fair value is about $4.20 a share, give or take a few bids. So, I do what I sometimes do and which I did not talk about during InvestX Congress. It wasn't something I was supposed to talk about at the event.
What did I do?
I looked at the charts.
Click to enlarge. |
I see lower highs on the MACD, a momentum oscillator, as higher highs in the share price were reached at $4.17, $4.26 and $4.27. This is a negative divergence. This is an indicator that weakness is on the horizon.
Immediate support is currently provided by the flattening 200 days moving average (200dMA) at $4.14. Is this support going to be tested next week? Possibly.
Bearing in mind that the 200dMA is a long term moving average, if support at $4.14 should be breached, we could see SPH's share price moving much lower. How much lower? That is hard to say but we can use Fibo retracement lines to get a glimpse of where the supports are likely to be.
Click to enlarge. |
Share price could retrace to $4.10 (the 50% golden ratio) or $4.055 (the 38.2% golden ratio). The support provided by the 23.6% Fibo line is a weak one at $4.00. So, if share price should go that low, we are likely to see $4.00 support breached.
So, given the technical analysis I did, if I didn't yet have a long position in SPH, I might wait to get some at immediate support which might be moved higher to $4.15 since the 61.8% golden ratio is at $4.145.
If I already had a long position in SPH (which I do), I will wait to accumulate on weakness which, given the negative divergence observed in recent weeks, looks likely to happen.
Related post:
SPH: Within expectation.