SG Stock Focus City Developments faces risk of further pull back within medium term uptrend

Tomorrow (Friday) 11 August 2017, City Developments, a bellwether Singapore property development stock will report its Q2 2017 earnings.  In May, the senior management of City Developments had noted that the Singapore residential property had shown signs of a recovery.

Interestingly, its counterpart, CapitaLand had also shared similar views where its CEO Lim Ming Yan commented during CapitaLand’s recent Q2 2017 earnings announcement on 03 August 2017. As reported by the press, Mr Lim stated that Singapore’s residential property market is bottoming out and prices in Singapore are more attractive relatively when compared with Hong Kong, London or Australia markets.

Singapore property development stocks as represented by FTSE Real Estate Holding Index had a stellar performance since the start of the 2017 where it soared by close to 25% that surpassed the performance of the benchmark FTSE STI Index which recorded a return of 15%. Interestingly, the stock price of City Developments had surged by 40% which outperformed both the industry sector and STI benchmark indices (see chart 1).

Chart 1 – City Developments & Real Estate Holdings share price performances since start of 2017

Thus, has the recent run-up seen in the share price of City Developments priced in fully on such positive scenarios expected in the Singapore residential property market?  Now, let us take a look at City Developments from a technical analysis perspective.

Medium-term technical outlook on City Developments (SGX: C09)

Key technical elements

• The medium-term uptrend of City Developments remains intact since its low of 6.61 seen in January 2016. In addition, it has managed to stage a bullish breakout from a multi-year descending range formation since October 2010 recently in July 2017. The former upper boundary of the aforementioned descending range has now turned into a pull-back support at 10.65 (see weekly chart).
• The recent push up in price action of City Developments has stalled right at the gap resistance of 11.96/12.46 formed between 07 Jan/14 Jan 2013 coupled with are two bullish exhaustion signals detected after its recent steep up move seen after the bullish breakout of the long-term descending range on 14 July 2017. Firstly, a daily bearish candlestick pattern called “Shooting Star” was formed on Monday, 07 August 2017. Secondly, the daily RSI oscillator has turned down from its overbought region and shows further potential downside before it reaches a corresponding support zone at the 43/33% level. These observations suggest the recent multi-week up move from 06 July 2017 (prior to the bullish breakout) is being “overextended” where it faces the risk of a pull-back/consolidation within its medium-term uptrend (see daily chart).
• The key medium-term support now rests at 10.12 (slightly below the pull-back support of 10.65) which is defined by the swing low areas of 31 March/19 April 2017 and the 50% Fibonacci retracement of the recent rally from 19 December 2016 low to 07 August 2017 high.
• The next significant medium-term resistance stands at the 14.04/65 zone which is defined by a Fibonacci cluster (the 76.4% Fibonacci retracement of the decline seen during the GFC from April 2007 high to March 2009 low & the 0.764 Fibonacci projection of the recovery from March 2009 low to October 2010 high projected from the January 2016 low of 6.61 – the start of the current medium-term uptrend).

Key levels (1 to 3 months)

Intermediate support: 10.65

Pivot (key support): 10.12

Resistances: 11.98/12.46 & 14.04/65

Next supports: 18.45 & 17.15

Conclusion

As long as the intermediate gap resistance of 11.98/12.46 is not surpassed, the current up move from 06 July 2017 low faces the risk of a multi-week pull-back/consolidation to retest the pull-back support of 10.65 with a maximum limit set the 10.12 medium-term pivotal resistance. Thereafter, another potential bullish impulsive upleg may materialise to target the next resistance at 14.04/65 within its medium-term uptrend in place since January 2016.

However, failure to hold above 10.12 is likely to see a deeper corrective decline towards the next support at 9.06 (the major ascending trendline in place since January 2016 low).

Charts are from eSignal

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