Multiple Tops In Indexes And Stocks (T, AJG, BCE, AVY)

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Commentary: 

Both the S&P 500 and Dow Jones Industrial Average have confirmed the completion of a short-term topping pattern on October 23, falling below the price-swing lows of the last month. A double top, occurs when a rally is followed by a correction and the stock or index rallies back to the price level of the prior rally. The pattern is confirmed when the price once again retreats below the correction low, indicating a further slide in the price is likely. A multiple top is similar, except it will have three or more rallies to a similar price area, separated by corrections. The multiple-top pattern in the S&P 500 index is not large – from high to low it is 48.98 which provides a downside profit target of 1376.55. Multiple tops have also occurred in numbers stocks, with technical traders likely looking to take profits on long positions, or establish short positions.

 

AT&T, Inc (NYSE:T)

AT&T, Inc (NYSE:T), the telecom giant, completed a multiple-top formation in mid-October. The price peaked near $38.50 (high is $38.58) on multiple occasions between August and early October with the correction low between the peaks of $36.43. The topping pattern completed as the price dropped below that correction low. The height of the formation is $2.15 to $38.58 minus $36.43 and gives an estimate of the expected drop in price. Deduct $2.15 from the low of the formation, also called the breakout price, and the target is $34.28. The stock closed at $35 on October 23 which means the double-top profit target is in close proximity. There is a series of former price lows just above $34 though, so if the price falls below $34 it could trigger a bigger sell-off. A rise back above $38.58, while unlikely in the short term, would be bullish and negate and the multiple-top bearish pattern.

 

Arthur J Gallagher & Co. (NYSE:AJG)

The peaks of the multiple top formation in Arthur J Gallagher & Co. (NYSE:AJG) stock is less defined, with each peak moving to visibly different levels, but still in relatively close proximity to one another. Since August, each peak has been near $37, with two peaks in September making it to the $37.50 region (unadjusted for dividends). Two correction lows are of interest, the first being the August 31 low at $35.41. This level has already been breached and indicates a price slide to $33.36. The next important low is at $34.46, and represents a larger multiple topping pattern. If the price breaks that level, the target is $31.36. There is some upward trendline support intersecting near $35, therefore, if a rally can punch back above $37.56 it negates the bearish topping pattern.

 

BCE, Inc. (NYSE:BCE)

BCE, Inc. (NYSE:BCE) broke below the lows of a topping pattern on October 19. Once again, the price peaks did not reach the exact same levels, but areas of support and resistance are clearly defined. The high of $45.68 marked the high of price peaks and the formation, and $43.45 was the low. This gives a target of $41.22, but if that target is reached there’s little in the way of support until the $39.50 to $39 region. What will act as resistance on rallies will now be $43.50 to $44. If the stock pops back above $45.68 the bearish pattern is once again negated.

 

Avery Dennison Corp. (NYSE:AVY)

Avery Dennison Corp. (NYSE:AVY) is near a breakout point, but hasn’t broken out yet. Therefore, the pattern hasn’t actually completed but it is one that can be watched. Peaks in August and October at $32.30 mark the main highs of the pattern and $28.91 the low. If the low is penetrated, the target to the downside is $25.52. As of yet that has not occurred, and as long as the price stays between the aforementioned high and low price the stock is range bound. A rally above $32.30 negates the pattern and is likely to push the stock above the $32.78 52-week high.

 

Bottom Line:

The multiple top occurs quite often, but are often missed because the more tops that are present, the more and more it appears to be a ranging market. Because it is possible for a range to develop at any time, multiple tops are generally not traded by technical traders until a breakout has occurred. When the price drops below the correction low(s), that is the signal the chart pattern is in place and that a further slide in the price is likely. As with any strategy, it doesn’t work all the time, therefore always know and manage your risk.

Charts courtesy of stockcharts.com

 At the time of writing, Cory Mitchell did not own shares in any of the companies mentioned in this article.

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Five biggest Chinese real estate plays on SGX

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On Friday the China National Bureau of Statistics reported that investment in real estate development from January through September had grown by 13.8%. The five biggest stocks/trusts on SGX with exposure to the Greater China real estate market all outperformed the major Chinese index benchmarks in the year-to-date. The five stocks/trusts are:

  1. Hongkong Land Holdings Ltd (H78). The company which is quoted and traded in US Dollars (USD) has generated a total return of 34.85% and maintains a dividend yield of 2.69%. In SGD terms, the total return converts to 32.84% in the year-to-date. The company owns and manages prime office and retail space in Hong Kong and through subsidiaries, it is active across Asia. With market capitalisation of approximately SGD 17 billion, the company is part of the Straits Times Index (STI) and has displayed a similar volatility level to the STI over the past two years. The investor relations page can be found here.
     
  2. Keppel Land Ltd (K17). The company has produced a total return of 64.67% in the 2012 year-to-date and maintains a dividend yield of 5.81%. Keppel Land is geographically diversified in Asia, with current focus on Singapore, China, Vietnam, Indonesia and India. The market capitalisation of Keppel Land is approximately SGD 5.3 billion. The investor relations page can be found here.
     
  3. Yanlord Land Group Ltd (Z25). The company has generated a total return of 32.98% in the 2012 year-to-date and does not maintain a dividend yield. The market capitalisation of the company is approximately SGD 2.5 billion. Yanlord Land is a real estate developer based in Mainland China that focuses on developing high-end residential, commercial and integrated property projects in Mainland China. The investor relations page can be found here.
     
  4. CapitaRetail China Trust (AU8U); The REIT has generated a total return of 53.22% in the 2012 year-to-date. CapitaRetail China Trust (CRCT) is the first Mainland China shopping mall REIT listed on SGX, with a portfolio of nine income-producing shopping malls. The market capitalisation of the REIT is approximately SGD 1.1 billion. The investor relations page can be found here.
     
  5. Ying Li International Real Estate (5DM); The company has generated a total return of 31.37% in the 2012 year-to-date. Like Yanlord, Ying Li International Real Estate does not maintain a dividend yield. The market capitalisation of the Chongqing commercial property developer is approximately SGD 724 million. The investor relations page can be found here.
     
    Dynasty REIT was launched last week and will be Singapore’s first Renminbi (RMB) denominated Real Estate Investment Trust (REIT). It has been established with the investment strategy of principally investing in income-producing commercial real estate located in Mainland China, as well as real estate-related assets. The closing time for the IPO is 12pm, 24 October 2012, with an afternoon listing on SGX scheduled for 30 October.
     
    The offer price of per units of the Dynasty REIT is RMB 4.40 to RMB 4.70, equivalent to SGD 0.855 to SGD 0.915 per Unit. Over the past 5 years, the Singapore Dollar has depreciated 0.25% to the Renminbi in contrast to appreciating 16.50% to the US Dollar. The units of the Dynasty REIT will be quoted and traded in both RMB and SGD. Dynasty REIT will have two trading counters:  a primary RMB counter and a secondary SGD counter. This provides investors with the flexibility to buy or sell the Units through either counter. Trades made in the Dynasty REIT RMB counter will be settled through the SGX-ST in RMB while trades made in the SGD counter will be settled through the SGX-ST in SGD. The units are fully fungible and any units acquired via the Dynasty REIT RMB counter or the Dynasty REIT SGD counter can be traded on the other counter seamlessly.

Dynasty REIT’s initial portfolio comprises of:

  1. Nanjing International Finance Center, which has 51 stories of mixed-use office and retail building with two basement levels with a 95.5% committed occupancy rate as of 31 May 2012.
     
  2. Dalian Tianxing Roosevelt Center, a retail mall with 5 stories and 2 basement levels and a 93.2% occupancy rate as of 31 May 2012.   
     
  3. Shanghai International Capital Plaza, which includes 29 stories of a mixed-use office and retail building with one basement level and a committed occupancy rate of 86.8%.  

Annualised, the forecast distribution yield of Dynasty REIT is 6.8% to 7.1% for 2012. This is based on the maximum and minimum offering prices. Based on these prices, the forecast distribution yield for the next year, 2013, is 7.0% to 7.3%. In the absence of an undertaking of a waived distribution of sponsor entitlements, the distribution yields would have been 3.2% for 2012 and 4.1% to 4.2% for 2013. The REIT sponsor [ARA Asset Management] has provided the Manager [ARA Trust Management (Dynasty) Pte. Ltd] with an undertaking that it shall waive (or shall procure the waiver of) entitlement to distributions on the sponsor units. Based on maximum to minimum offering prices, waivers amount to between RMB 6.9 million to RMB 7.2 million for the Forecast Period 2012 and thereafter between RMB 16.7 million to RMB 17.3 million for every financial year until the financial year ending 31 December 2017.  More information can be found in The Dynasty REIT prospectus can be obtained here.

Source: SGX My Gateway.

 

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