Hi-P – bearish engulfing candle forms after rising for 12 out of 15 days (29 Oct 2019)
This week, Hi-P has caught my attention with its 33% surge from the intra-day low of $1.13 on 7 Oct 2019 to trade to an intra-day high of $1.50 on 29 Oct 2019. In addition, it has risen 12 out the past 15 trading days with RSI touching a recent high of 81.8 on 25 Oct 2019.
Based on Hi-P’s chart, it seems to present a favourable risk to reward short trade. Please see the basis and more importantly, the risks.
a) Hi-P trades above the higher analyst target price $1.32
Average analyst target price for Hi-P is around $1.27. Two analysts cover Hi-P with DBS having a higher target price at $1.32. (Maybank: $1.21). I.e. on a simplistic level, this may mean that the stock is overvalued.
Figure 1: Average analyst target price $1.27
Source: Bloomberg 29 Oct 2019
b) Candle stick forms a doji, followed by a bearish engulfing candle
Based on Chart 1 below, Hi-P formed a doji on last Friday. This was followed by a bearish engulfing candle today on above average volume. In addition, both RSI and MFI hit multi-month highs at 81.8 and 100.0 respectively. It is noteworthy that the maximum level for MFI is 100.0. Furthermore, Hi-P has risen 12 out the past 15 trading days which may subject it to some profit taking, as overbought pressures build.
Near term supports: $1.42 / 1.38 / 1.35 / 1.32
Near term resistances: $1.48 / 1.52 / 1.57 – 1.58 / 1.63
Chart 1: Hi-P formed a doji on last Fri and a bearish engulfing candle on Tues
InvestingNote 29 Oct 2019
a) Apple reports results on 30 Oct, after market
It is noteworthy that Apple reports results on 30 Oct, after market, which may be another risk. If Apple’s results and guidance beat analysts’ estimates, Hi-P may move up more.
b) Chart is still on an uptrend
Based on Chart 1 above, Hi-P is still on an uptrend as evidenced by its rising exponential moving averages (“EMAs”). Any retracement in the current uptrend may be mild and may find support around $1.26 – 1.33.
c) I am not familiar with Hi-P
Suffice to say that I am not familiar in Hi-P’s fundamentals, as my main basis is mostly technical. Readers should do their own due diligence and exercise their independent judgement. There may be reasons known to the market, but unknown to me which explains the 33% rally in Hi-P’s share price. Readers can refer to analyst reports HERE for more information.
d) Maybank estimates Hi-P’s acquisition of Seamco may add S$8m of earnings each to FY20F & FY21F
Hi-P is in the midst of acquiring Seamco. If successful, Maybank estimates this may add approximately S$8m each to FY20F and FY21F earnings. Thus, even if the upcoming 3Q results are weaker than expected, Hi-P may not drop too much, if it completes its acquisition, and gives more details on how Seamco can contribute to its FY20F & FY21F performance.
e) Numerous event risks ahead
As u are aware, there are various event risks in the near term such as U.S. 3Q corporate results; progress on U.S / China trade talks; Brexit; FOMC, U.S. monthly jobs report etc. which may influence risk sentiment and therefore, share prices.
f) Results are an event risk
Hi-P is going to release results on 31 Oct, Thursday before market opens. Results are typically an event risk hence do be careful. If Hi-P surprises the market with better than expected profit and guidance, its share price may climb further. The reverse is also true.
g) Valuations are mixed
Hi-P trades at 11.2x current PE which is significantly below its 10-year average PE of 24.5x. However, Hi-P currently trades at 2.1x P/BV vs its 10-year average P/BV of around 1.2x. In other words, depending on which valuation measure we use, it is not exceedingly expensive, or cheap.
Hi-P’s chart seems to indicate there may be some profit taking in the near term. However, it is noteworthy that there are several event risks (e.g. Apple’s results; Hi-P’s results; FOMC etc.) which may influence risk sentiment and therefore, share prices. I have initiated short positions in Hi-P via CFDs with the aim of exiting for a few bids of profit if possible. It is noteworthy that I am not aiming for a trend reversal but a retracement only. The above is my personal view only. Please exercise your own due diligence and independent judgement.
P.S: I have notified my clients of Hi-P last Friday and Tuesday morning where it was trading around $1.48+.
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