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Today there will be a few Hong Kong large cap names releasing earning results and one of them is Ping An Insurance (2318 HK). It is worth noting that yesterday before the Hong Kong & Shenzhen Connect announcement, the northbound net buy was the highest in one year record and that Ping An Insurance was the top buy name among all the stocks.

Today Ping An Insurance is trading slightly lower ahead of its results, and it could just be a technical pull-back from profit taking from yesterday. It is interesting to see that Ping An Insurance’s implied volatility volume has risen significantly as seen from the yellow triangle displayed below. Note that when Ping An Insurance’s implied volatility volume spiked up last three times on January 12th, April 13th and July 15th this year, its share price always reacted strongly.

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Ping An Insurance – Implied Volatility Summary :

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Ping An’s implied volatility high volume signal on January 12th, April 13th and July 15th this year, and the current high volume signal:

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Ping An Insurance share price’s responses on the days where it had implied volatility volume spike:

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OTAS has fired a Bollinger Band (-) signal 4 days ago and on average the stock might generate 5.0% return over the following 20 trading days. Perhaps it could now be a good time to add positions before the results come out?

Overnight the crude oil price settled below $40, meaning the price has pulled back 20% from $50 to below $40 within two months. China’s largest offshore Oil and Gas producer CNOOC (883 HK) issued a profit warning six days ago, citing that it is likely to make a greater than expected first-half loss of $1.2bn. Behind the headlines however, there are concealed opportunities highlighted by OTAS this morning, where a few positive signals have flagged with the stock down 10% from the recent high.

The implied volatility of CNOOC relative to the industry has decreased to 0.90 from 0.93 last month, and remains below the industry average. Month-on-month implied volatility is down 7%. In general, declining implied volatility means greater certainty and may lead to a firmer share price.

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While the share price has dropped 3.7% in the past month, EPS momentum has increased by 9.25% despite the recent profit warning. In fact, CNOOC’s EPS momentum has picked up from a negative three months ago into a positive in the last two months.

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EPS Momentum Chart (past 1 year)

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EPS Momentum Chart (past 6 months)

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The 12 months forward dividend of 3.38% remains relatively high within the sector. Peers such as Petrochina ‘H’ and China Oilfield Services ‘H’ yield only 1.92% and 0.84% respectively on a 12 months’ forward basis. CNOOC’s dividend payout is far greater than that of Petrochina and it is a signal that management is relaxed about a period of temporary earnings weakness, which in any case appears to be over.

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The supermarket sector in Australia has been quite competitive, Coles has recently took over Woolworths as the leader in market share in the region, while Aldi is gradually gaining more and more market share and taking business from Woolworths and Coles. For the past three weeks, we have seen that Woolworths has been having a good run. The stock has rallied from the low $A20.5 to last Friday’s high at A$24.48, with huge volume of 13.5m shares happened just last Friday after the Company released the FY16 EBIT guidance. The CEO announced that there are clear signs of progress in terms of positive customer scores, team engagement scores and continued transaction growth. Despite this giant retailer seemingly standing strong, OTAS has picked up a few signs that this rally is perhaps triggered only by short covering, and that it may not be sustainable because of the stock’s high valuation, falling EPS momentum and descending dividend trend.

The % of free float shares on loan and the stock price of WOW AT has recently narrowed and crossed, as shown in the short interest graph below. The data is up to July 25th 2016 and it has taken into account the big volume day from last Friday:

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The stock is highly expensive among the retailing space and its Asia ex Japan peers.

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The OTAS Divergence graph shows that Woolworths is an outlier in the EPS vs. Price Graph below. Its price has been up 14.3% while EPS momentum is down by -3.56%. Analyst consensus is showing that the mean target price is at the A$22.58 level which is 4.2% lower than the current share price.

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Forward dividend yield graphs is trending lower, another implication that the risk of falling profits could be taking place.

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A follow up to last week’s note, the hype of Pokemon Go continues to spread across the globe. Yesterday, the well-known Hong Kong listed technology stock Lenovo rose up by 7.6% to a two-months high, thanks to the company plans to launch Smartphone Tango with Augmented Reality features in September this year.

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OTAS has effortlessly captured the positive sides of this stock in a glance. Particularly, if you take a closer look at the Insider Transaction of Lenovo for the past one year, OTAS shows that the Chairman of the Board & CEO, Yang, Yuan Qing, has increased stake by five times. The last period of time when Yang increased his stake was in August 2015 (three times) with average price of $7.18, subsequently the stock rose up to $8.76, a decent rally of 22% within three months. This current month, Yang has increased stake by 20,000,000 shares, a much larger number of shares than his previous stake increase. In fact, Yang has increased stake to a much more significant position of 8.12% from 6.79% (as shown in the table from Hong Kong Stock Exchange below), revealing his confidence about the company’s future share price.

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HKEx filings – Yang Yuan Qing  % of issued share capital from 6.79% to 8.12% as of July 8th 2016.

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Moreover, the valuation of the name is at a very cheap level with P/E lower than most of its technology peers in Asia. And according to IDC, Lenovo has the highest market share in PC shipment and the overall global PC shipment in Q2 2016 has exceeded expectation. Combined with all the other positive flags from OTAS, we can expect a stronger demand of Lenovo’s sales in the second half of the year.

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The OTAS Divergence chart shows that the price has been up +11.92% in a month, with short interest just up slightly by +0.82%. We do not see significant new shorts on back of the rally.

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Last Friday the stock Nintendo rose 11% after one of its smartphone game Pokemon Go was ranked no.1 of the apps download chart in the US, Australia and New Zealand. Furthermore, this morning the stock has rallied another 25% and hit daily limit up in Japan. In a nutshell, Pokemon Go is an augmented reality smartphone game and players would ‘capture monsters’ using their smartphone cameras in the real world locations. When investors might be thinking that the Nintendo share price has been in a rally due to short squeeze, OTAS has pointed out that there are some real investors buying the company as the short sell levels of the stock is only 1 day to cover. And in fact we also see that all the Japanese gaming names have a low short interest ratio.

Investors were worried about the results and shorted the stock ahead of the results in April 2016. However with the successful launch of their first mobile app Miitomo in March, the % of FFS on loan of Nintendo has remained to be on low level.

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Generally, the short interest of the Japanese gaming industry is relatively low compare to the stocks in Japan Top 225:

Stocks in the Japanese entertainment field

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Japan Top 225 stocks:

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Volume of Nintendo has spiked up last Friday and today with close to no short covering as shown above. Investors are not hesitant despite Yen coming strong (around 100.6) and been chasing the stock.

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The Nintendo stock performance has been positive so far this year, as well as being the out-performer compare to its region and industry.  With the success of Pokemon Go, plus a strong pipeline with lots of other popular characters, the company see a promising outlook in the near term.

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With the recent global market selloff, the probability of a US rate hike has reduced substantially and therefore the investors are seeking safe haven and chasing for yields during the selloff episode. The REIT names in Hong Kong such as LINK REIT has just made record high in its share price today. Similarly, most of the names on the list of REITs in Hong Kong (https://www.hkex.com.hk/eng/prod/secprod/reit/reitlist.htm) are also flagging positive indications on OTAS.

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Link Real Estate Investment Trust (823 HK)

This high yield defensive stock has just made record high in its share price with decent trading volume after recent earnings and dividend. In fact, an MACD (-) contra BUY signal was fired on OTAS just a few days ago, accurately indicated to us of the positive return in the following days.

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Link REIT on record high today

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Fortune Real Estate Investment (Hong Kong) Trust (778 HK)

Other than the outstanding performer above, Fortune is another REIT stock that we can keep an eye on. Market is expecting its Q1 2016 Earnings Release coming up soon on July 25th 2016. EPS momentum of the name is also among the top 10% of all the positive performers in the industry group, with 12 months forward EPS momentum up by 1.5% and 0.7% over both one and three months respectively.

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Moreover, an OTAS Fast Stochastic (-) contra BUY signal was just fired upon yesterday’s close with a fairly high win rate of 72%, indicating a positive return of 2.8% in the coming days.

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Today under the Hong Kong Main Cap names, we see that four out of the nine largest decreases in % of free float shares on loan have their next dividend dates either on today or coming up within a week. This shows that the market has some short covering, or recall of highly shorted large cap stocks before their upcoming dividend date.

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Now let’s take a closer look into some of these names:

China Construction Bank (939HK)

The ex-dividend name today has its implied volatility gone up by 8.83% while its price was soared by 14.4% in just a month. The stock has been doing very well recently and general consensus is still a BUY, with positive EPS momentum over the next three months. Perhaps a stock to hold in a shorter term?

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Industrial and Commercial Bank of China ‘H’ (1398 HK)

CCB (Price change +14.04%, EPS change -0.44%)

ICBC (Price change +10.85%, EPS change +0.64%)

Even though the recent price change of CCB has been weaker than its peers, its 12 months forward EPS momentum has been pulling strong. Perhaps a pair trade of long ICBC and short CCB would be applicable to some.

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Link Real Estate Investment Trust (823 HK)

Not only that the EPS momentum is strong, Link REIT is also trading at 16 months high. Cash dividend is out, we may also expect to see some pull back on the stocks coming soon.

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This week started on a distressful note. The Hang Seng Index plunged 500 points this morning tracking overnight weakness from US and Europe, latest BREXIT poll result and domestic terrorism tragedy in Orlando. This morning the GBP weakened further and JPY strengthened 70bps which dampened investors’ confidence. OTAS has been flagging names that are under pressure with risks of further downside.

Hong Kong Main

List of stocks flagging negative warnings.

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Bank of East Asia (23 HK)

Insiders have sold total of $7.4mm in the past month. Valuation remains high and dividend trend is expected to decline as well. Its Price/Book valuation of 0.9x is very high relative to the valuations, whereas the 12 months forward yield of 2.9% is very low relative to its banking sector. According to TIM Indicator, sentiment on this stock is generally negative.

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Hong Kong Exchanges and Clearing (388 HK)

Implied volatility dropped significantly compare with ASX. Generally speaking, implied volatility decreases when investors believe that the stock price will rise over time. Perhaps an indication from the market on hope of Hong Kong and Shen Zhen connect to happen soon?

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Nevertheless, the stock remains to be very expensive – the 12 months forward P/E valuation of 33x is high relative to the past two years.

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China Mobile (941 HK)

Price to book is  shown to be the highest among the three giant telecom names in China.

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Within its telecom sector, China Mobile’s 12 months forward EV/EBITA valuation of 4.9x is on a very high level relative to the past two years.

 

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OTAS has been flagging some interesting Insiders transactions in the regional market lately. These transactions are valuable to investors as they show how the stocks could perform well in the long run, or the opposite.

LG Chem (051910 KS)

The demand of the Electronic Vehicle Batteries has been growing rapidly, and LG Chem is one of the names that is well positioned.

From the OTAS news, the battery size of the market is estimated to reach a market size of $17.26 billion by 2021.

http://www.4-traders.com/news/Battery-Market-Estimated-to-Reach-a-Market-Size-of-17-26-Billion-by-2021-Growing-Integration-of-E–22249255/

Looking at Graph 2 & 3 below, the share price of LG Chem has been corrected -18% from the peak in March. Since then, the Company management has been increasing stake for more than 16 times since April 2016.

Asia Large Cap (Graph 1)

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LG Chem (Graph 2) – Green arrows represent the times of increasing stake

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LG Chem (Graph 3)

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On the other hand, OTAS flagged that the CEO and Independent Director of Commonwealth Bank of Australia (CBA AT) have been cutting stakes at A$77 levels. Market concern of the bank’s net margin shrinks as interest rate trend is declining, and worry about whether the bank can maintain its dividend pay-out. Would A$77 be a toppish level?

Article on Australian Banks a potentially catastrophic crisis

http://seekingalpha.com/article/3977693-australian-banks-thin-ice?source=feed_sector_financial

Commonwealth Bank of Australia  (Graph 4)

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Commonwealth Bank of Australia  (Graph 5)

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Global uncertainties were injected into the market: overnight, the Federal Open Market Committee had revealed higher chance of rate hike in June while Brexit risk still remains. OTAS has highlighted the top ten days to cover for the Asia Large Cap names. Interestingly, nine out of  these ten equities are listed in Hong Kong, which resonates with the fact that Hong Kong’s recent shorts turnover has been the highest  since 1998.

Asia Large Cap Names

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Prada (1913 HK) needs 61.57 days to cover, highest amongst the Asia Large Cap names. Overnight, its luxury brand peer Burberry’s share price had dropped by 2.7%, positing a second straight drop in annual earnings.

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The Hong Kong jewellery and luxury goods sales was hit hard.  Chow Tai Fook Jewellery Group (1929 HK) short interest is higher than its peers as the company released two profits warning within a year.

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HSBC (5 HK) had a significant increase on days to cover within a week – it had jumped to 18.4 days from 2.69 days just from one week. 2.7% of free float shares are on loan, which is high relative to the past two years and up by 567.4% in the past week.

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Want Want China Holdings (151 HK) has 12.8% of free float shares on loan, which is very high relative to the past two years and highest amongst its peers as well.

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