Update: On 28 Sep 2022, SATS announced a proposed acquisition of Worldwide Flight Service.
With more and more countries opening up Vaccinated Travel Lanes (VTL), I daresay that both Singapore Airlines (SIA) & SATS have now transited into somewhat of “momentum plays”. This may be the much-needed bullish reversal which both companies have been waiting for since the cancellation of the Travel Bubble between Singapore and Hong Kong.
In this article, I will be going in-depth into the technical indicators which I have observed for both SIA & SATS in the past 2 days and how I see their near-term trend moving forward.
What is a Momentum Play?
Personally, I define a momentum play as a “temporary period where the price action of a stock is more predictable due to impending catalyst“.
With technical analysis, we use historical patterns in the price action to identify patterns that may emerge in the future. It is never 100% guaranteed to succeed however it does give traders a higher “hit-rate” as compared to blindly making an entry.
When a stock enters a stage of “momentum”, I consider this a period where the “hit-rate” of technical analysis is a little higher than usual simply due to the increased clarity of the trend.
One key thing to take note about Momentum stocks is that they are usually temporary. This means that the hype will die down and the stock, depending on its fundamentals, may not see such momentum again in the near term. One example is the case of Hyphens Pharma (SGX: 1J5). While I can’t comment much about their fundamentals, I must say that the stock is one example of a momentum stock whereby if you did not know when to quit, you’ll probably be holding on to a “bag” at present.
If you are left holding on to a “bag” once everyone else has left, then the only thing left to comfort you would be the extent of your conviction in the company which also translates to knowing the “value” of what you are holding.
SIA vs SATS: Who has stronger momentum?
The chart below shows the comparison between SATS and SIA. It is clear that while the charts show a direct correlation between the two companies, we are seeing more strength in SATS than SIA.
However, in my opinion, the company which is more likely to outperform in the short-term is SIA. This is because unlike SATS, SIA’s revenue centres are a little less diverse. While SATS could pivot its businesses to cater more to the local market such as catering, production of frozen food etc, SIA was still by and large impaired by the pandemic.
This leads me to think that the share price of SIA does indeed have more “catching up to do” than SATS.
How long will SIA’s momentum last?
With momentum stocks, we want to look at them at a shorter time frame as any patterns in the chart become clearer due to the increased volume.
What SIA’s day chart suggest
Using the day chart (see below) as an example, we can’t really identify any short terms patterns in the price action apart from how this $5.50 price point served as a mild support level for the stock early this year.
If I had to infer any more clues based on this day chart, I’d say that the momentum on the first day of trading (11th October) after VTL was announced was actually quite disappointing based on the amount of price rejection reflected in the candlestick at the close on 11th October.
What SIA’s 30-mins chart suggest
However, if we looked deeper into the 30minute candlesticks, some patterns do start to emerge.
- We can identify that the range between $5.48 and $5.50 has become somewhat of a stable support during this momentum build up. This is where investors may have possibly have found it a “good deal” to enter during this rally.
- One indicator which suggests that this crucial zone may be the start of another rally is how we see the MACD indicator turn red (which is a sign of weakness in a stock) but yet we see price holding up well between $5.48 and $5.50. This divergence between the MACD and price indicated to me that this rally is not over yet.
- Avid traders may wish to pay close attention to this $5.50 point as it is not by “accident” that prices have consolidated here. Bear in mind that it also served as a psychological barrier for many. I dare say that this happened by more than mere coincidence.
- Any movement out of this short term range may be an indication of what is to happen next. I’ll be paying close attention to this to guide my next move.
Will this rally last?
I do think that this time, things are different as it is unlikely that the VTL programme would be called off or even paused should the Covid situation take a turn for the worst. Our country as a whole seems bent on reopening and we are seeing other countries in the region follow suit.
As unpredictable as Covid-19 has been since its inception, it is apparent that this time around, the solution is to simply “live with it”.
Should this be the case, we may very much be at the start of an epic bullish reversal given the build-up in pent-up demand over the past 2 years.
What do you think?
P.S. Alvin uses combines momentum with a quality factor to find stocks that are likely to keep rallying. You can learn more from him here.
Disclaimer: While this article focuses on the technicals behind the massive momentum that both companies are experiencing at present, nothing discussed here constitutes professional and/or financial advice. Trading in financial instruments carries various risks and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading.