Any hope for Properties? : Capitaland Limited

Capitaland is one of the largest listed real estate companies in Asia. Headquartered in Singapore, the multinational company's core businesses in real estate, hospitality and real estate financial services are focused in gateway cities in Asia Pacific, Europe and the Middle East. It is one of the 30 component stocks in the Straits Times Index.

The company's real estate and hospitality portfolio spans more than 90 cities in 20 countries. CapitaLand also leverages on its significant real estate asset base, financial skills and market knowledge to develop real estate financial products and services in Singapore and the region.

The share price of Capitaland, like many other real-estate companies, enjoyed a good bullrun from the property boom since year 2003. Share price was around $1.00 (adjusted) in April 2003 and it went as high as $8.60 in April 2007. This registers a whopping 780% increase in a period of 4 years, or 195% on yearly average. Since April 2008, the share price took a dive to $4.38 because of a major correction, almost half from the high in April last year.

This counter has been analysts and investors favourite because of the property boom period. However, in the past few months, analysts have either recommended sell, downgrade, or revise (lower) the price target. How long will the downward correction last, and is the price low enough to be picked up now?

I am only be able to give my humble opinion on the share price of this company using my knowledge in technical analysis (and please read the disclaimer below).

Technically, the share price is still in a down trend (intermediate term). The down trend is a correction of the bull rally (major trend) since 2003. It has corrected or retraced more than 50% of the bull rally and this is a big correction in technical standards because normally a trend would continue after a 38.2 or 50% retracement. Note that 38.2% and 50% is based on Fibonacci Retracement levels.

In this analysis, I will apply Fibonacci tools to determine how low can the correction be or is it already low enough currently. First tool is the Fibonacci retracement tool. The next retracement after the 50% retracement is 61.8%, which is currently at $3.84.

The next tool is by using a Fibonacci expansion tool. The extension tool is used to determine how far can an existing trend extend, and in this case, how low can the intermediate down trend be extended. Calculated from point A,B and C on chart below, the forecast based on this tool is at $3.78, quite close to the 61.8% retracement. Chartists call this a confluence of Fibonacci levels. It means “two (or more) heads are better than one”.

The next thing to do is to look for evidence or confirmation in the chart to support these levels. One of the evidence of support is from the intermediate down trend channel trend lines, which runs in parallel. The bottom line is currently at about $3.80. The next evidence is a pivot support in early June 2006, which its pivot low price at $3.82.


Weekly Capitaland chart as at 29 Ausgust 2008 using NextVIEW Advisor

Therefore, the analysis above shows that the technical support level exists at $3.78 to $3.84 range. With price currently at $4.38, it may provide a good opportunity if the long term up trend is able to hold. As a trader I will look for setups before making a trading decision. A setup is a set of chart patterns or indicators used to confirm an analysis prior to making a trading decision.

Commentary and Analysis by Benny Lee