Before I start, I will like to state that this short write up is to highlight an opportunistic play on Capitaland and not an in depth analysis on Capitaland’s fundamentals.

With reference to Chart 1 below, it is apparent that Capitaland has underperformed the FTSE Straits Time Real Estate Index (“FSTRE”) and FTSE Straits Time Index (“FSSTI”) by more than 16-17% year to date. This is due partially to the clamp down measures by the SIN government but mainly to the tightening measures by China as Capitaland has a significant exposure in China.

Source: Bloomberg (30 Nov 10)

With reference to Chart 2, it is apparent that RSI has declined to levels not seen since Jan 2009. Nevertheless, as this chart is not specific enough, I have downloaded a ten year data on Capitaland’s RSI_14D (daily period) from Bloomberg. Out of the 2,485 trading sessions, only ten sessions have RSI which are lower than the 30 Nov level of 20.3. Out of these ten sessions, seven sessions occurred from 13 Sep 2001 to 21 Sep 2001. The last time that Capitaland traded at an RSI level lower than 20.3 was 8 Oct 2008.

In addition, the lowest RSI level throughout the 2,485 trading sessions was 13.1. Thus, at this level, it may be a good time for aggressive traders to initiate long trades via tranches on Capitaland.

Source: Shareinvestor (29 Nov 10) – should be lower after the plunge today

With reference to Table 2 below, analysts’ consensus target price is around $4.43, representing 23% upside against the current price of $3.61. There are 14 buy calls, 6 “hold” and 3 “sell” calls. Thus, assuming that the majority of the analysts is correct, there seems to be no serious company specific problems on Capitaland.

Source: Bloomberg (30 Nov 10)

It is rightfully that RSI should not the sole indicator to indicate that a company is ripe for rebound. In addition, RSI can remain depressed for some time, thus clients should not do contra but to consider buying at least a tranche with a horizon of 1-3 months.

Notwithstanding the above, it is a good indicator (and sensitive but not too sensitive) to highlight companies which are oversold. Furthermore, I have used a ten year data (2,485 trading sessions) to increase the probability of the veracity of this signal. In addition, other indicators such as MACD or MFI also corroborated to the oversold condition.

Readers should evaluate and understand their personal risk profile before initiating trades as opportunistic trades involve risk which may be more than that of long term trades.

Although it may be true that Capitaland has not hit the bottom yet, the odds are likely to be in our favour to initiate long trades in Capitaland via tranches with a horizon of 1-3 months (as we would never know where is the bottom but we can be fairly sure that the bottom is rather near). Lastly, the triple week consecutive slide in the markets also increase the probability of making a good return on this trade.

I have provided Capitaland’s supports and resistances (below) for reference only. They may change accordingly depending on market movements.

Price on 30 Nov 10: $3.61

Supports: $3.60 /$3.56 / $3.50 / $3.46

Resistances: $3.65 / $3.74 / $3.80

This is an amended version of the write-up which I sent to my clients yesterday.

Disclaimer
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