Monday, 27 August 2018


We think it was a fair assessment that the entire bloody market was caught flat-footed by the announcement by Sapura Energy Bhd (SAPNRG); on a sleepy Friday afternoon, no less. For existing shareholders, the development was not a strictly positive one; the firm announced plans for a massive, highly dilutive, rights issue to raise cash.

This was something that got us all hot and bothered. We very quickly considered the possible scenarios that can come out of this, particularly on how the immediate reaction would be. We are no scholars in SAPNRG's business; we have no special expertise to divine its future fair value or what the stock is fundamentally worth. But we do understand volatility, and this news was a classic trigger.

The stock was trading serenely at 60 sen prior to the midday close; the announcement came during this break. As with many of you, we were looking at the buy-sell queues just before trading resumed at 2:30PM. It looked like the stock was going to reopen slightly lower (which it did), but by that time we've made up our minds already.

 2:29 ;)

Now let's take a step back. We will explain our thought process regarding this news and the extent of our anticipatory powers. 

We didn't have time to crunch the numbers, but our big picture analysis was just enough in supporting our belief that the market will take this news especially terribly. Here's a list of the whys - we try to be logical and not too speculative in our thinking.

1) A RM4bil cash call indicates a crucial need to expedite this collection of funds. The reasoning is simple.

The jump in short term debt obligations : Latest 1Q VS 4Q at preceding year end - Source.

It was also apparent to us that given SAPNRG's sprawling existing borrowing commitments with local banks, it is no easy task to raise this much money from its creditors quickly. So getting it from the public markets is the way to go.

 The whole thing, in case you were that curious.

2) We really did not like the idea of the rights proposal and believe that it is especially punitive to the stock. Dilution hurts value creation, and shareholders are already jittery from the value destruction that came from the fall in the stock's value; if you had been a SAPNRG shareholder since Jan 1, 2018, by 29 Aug you'd have lost 41% in the value of shares you hold.

So what is it that we did not like? Let's use the following examples for some perspective:

a) The current shares outstanding is 5.99 billion. The rights issue will increase the total shares outstanding by a whopping 166%. We're talking an extra 9.99 billion shares - numbers we can't easily comprehend.

b) SAPNRG's market cap alone is RM2.49 billion. The cash call seeks to raise RM4 billion - the equivalent of creating 1.5 times worth of SAPNRG, if we're being super simplistic.

Create a twin to shoulder half of your burden, maybe? Source

c) That RM4 billion figure again. Who foots the bill? The shareholders. And given the recent shareholder related grievances we've read about, this cash call is probably not what you'd call a pleasant surprise. 

d) This exercise will help lighten the debt load, but any value creation (reflected in the net asset value per share) is offset (possibly by a factor of ten) by the dilutive consequence of the rights issue. In plain English, shareholders won't derive much value from this whole thing - not in the short term, anyway.

3) We may not like it, but we fully understood the rationale behind the cash call. Raising cash is a positive and important move for the company. However, it comes at a steep cost for both company and shareholders; serious dilution, and in effect, a negative impact to the stock price and the NAV.

It is with this knowledge that we return to 2:30PM on 24 Aug, 2018. We thought the stock was going to fall, and we were prepared to trade on the short term volatility, a concept we have explained before. We didn't bother to consider trading the warrants; there was no need to. The stock itself is liquid enough for trading considerations, and we can confidently trade in size.

So this happened. Below is the five-minute chart for SAPNRG that day.

The red candles translates to : RM1 billion of market cap lost in ten minutes.

The market's reaction was swift and violent. Tens of millions of shares were sold within minutes and the stock rapidly fell. We thought about entering at the 50 sen mark, but the buy-sell queue indicated that liquidity had temporarily evaporated. The was a deluge of sell orders and only a fraction of willing buyers. There was still further downside in this.

Eventually the stock fell to an all time low of 37 sen - remember that it closed at 59.5 sen the day before. We failed to realise that it was the all time low, given that by this point we had already made our move and were knee deep in SAPNRG shares.

To make serious money as a small fry, retail investor, you need to have a high risk tolerance. This is especially so in 'volatility trades'; hey, it's right there in the name. To give you a flavour of what we endured, note that we first bought in at 2:35PM. In the 10 subsequent minutes, the stock actually fell to 37 sen, leaving us with a temporary paper loss of 13% in our holdings. It's a five figure hit.

However, two things worked in our favour. We knew that there is a high chance of entering the trade at a good price during periods of peak fear; when a stock loses 38% of its value in 10 minutes, this is what we mean. We also knew that anything below 40 sen is close to the previous all time low, market psychology dictates that investors would be keen to snap up shares in anticipation of a 'double bottom rebound', in chartist parlance.

Partial daily chart. Note : we don't give a hoot about technical analysis, but we do care about market psychology.

From the trough of 37 sen, the stock bounced back fairly quickly; this had to happen for us to stay in the stock. We acquired some more SAPNRG shares as it breaks through to 40 sen and beyond. Note that we swung from losses to breakeven to profits in under 20 minutes; this is pure short term volatility trading at its most raw. And if you're familiar with our blog, strategy, and content, note that we weren't clueless in executing this particular trade. We've been in this situation before.

In less than an hour we were out.

In its essence, this whole trade was about processing information and distilling them. We had to figure out the thematic, anticipate the market reaction, knowing what to buy, how to buy, and how much - all in the span of an hour or so (between the time the announcement was made and when trading resumed). The trading window was extremely narrow, but we foresaw an opportunity to execute a potentially highly profitable trade. As it turned out, the payoff is worth the trouble. 

Wednesday, 1 August 2018


We try not to be too philosophical or take our musings too seriously, but one of our favorite trading truisms is this : sometimes it's OK to operate and make decisions based on dubious logic, provided the rationale is sound. We only care about two rationales : preserving capital and making money.

In a real-time context, we are utterly powerless to grasp absolute truths. We operate based on imperfect information and expectations of events that may or may not came true. At times we may offer opinions that are completely loopy or misguided in hindsight, but these were made with conservatism in mind.

We're aware that what we just wrote sounds completely stupid. Here's a trippy illusion to help you forget them.

Sometimes, instinct take precedence over reason. Perhaps we intuitively feel that it's time to exit a trade without being able to explain why. We have been known to make ungrounded assumptions to support this intuition - they may not be fully accurate, but they help give us the conviction to act conservatively and protect our capital.

In other words : you can afford to talk bullshit with cash in hand. Just don't lose that cash because of your own bullshit.

A healthy dose of conservatism  (anchored by intuition and sometimes dubious logic) has helped us protect our profits in REVENUE, another successful post-IPO coup after our recent foray into MI. We went through several stages of optimism, pessimism, dismissiveness and regained optimism in order to squeeze profits out of the stock. Not only that, we dare say that such dubious logic has helped us maximise our profits.

REVENUE, a cashless payment solutions provider, was listed on Bursa Malaysia on July 18. In just five trading days, we made this much:

Not bad, eh?

We settled for lower percentage returns in return for significantly high absolute numbers. This particular strategy called for a lot of conservatism. We rode profits when we can and got cold feet as soon as we felt weird about staying in the trade.

We were consciously trying to maximise the profit potential by playing off well-known angles that we have explained before. We also ended up sacrificing a major chunk of paper profits after getting caught in a volatile phase.

But here's the most perplexing thing : sometimes our reasoning to stay in, or out of the stock, can be confusing and inexplicable. We will say we did things because of this and that, but as you will see, the reasons are just guesswork. They can never be proven and have little utility as trading signals, but we used them anyway to anchor our conviction in some trading decisions.

Based on our results, perhaps we can persuade you that sometimes leaps from logic can actually work.

Let's dissect this trade and what occurred during this pivotal five-day period. We're doing something new today - our timestamped Twitter posts will be overlaid over a price chart to convey our unprovable assumptions at the time. We based our actions on dubious reasoning, no doubt, but those actions saved us money and made us money - several times.

Behold this unholy mess; we will go into each entry with detail. Each candle represents 15 minutes of price activity in REVENUE from 18 to 25 July (five trading days).

There are three distinct phases here.


Duration : 9AM - 3PM, 18 July

Strategy : Validation of momentum, early stage volatility

Outcome : Profitable

We are largely familiar with trading new listings. In fact, we managed to derive large gains just recently from our Mi Equipment trade using the same thematics and strategy; hence we will not go into great detail here.

In its distilled form, the strategy boils down to this:

1) Prepare a game plan prior to the listing of the stock. Analyse its fundamentals and potential market sentiment. Anticipate potential outcomes on the first day of trading.

2) Watch the opening of the stock closely. If the stock opens at a premium, watch out for signs of weakness. Anticipate possible accumulation of the stock at its intraday low.

3) Accumulate the stock itself and observe its gradual movement. If it keeps heading upwards, it's time to buy more.

4) Let the stock hit a 'trigger' point. When it does, this represents a confirmation of momentum - an even bigger rally is at hand. By this point you're supposed to have accumulated a meaningful amount of shares. This position should be showing some paper profits and will serve as a buffer.

5) Confirmation of momentum is one thing. When it becomes apparent that volume is increasing and the price is moving faster, and especially if it hits a new intraday high, it's time to buy more shares. As much as you possibly can within your credit limit.

This is essentially what we did. In short term trading, this is practically the only way to make five-figure profits while remaining conservative. No gambling here; we consider our methods as reactive, not so proactive.

What we have just described is represented in 'A':

Note the timestamp!!

These are deliberate, slow and controlled buying activity. We do not buy huge positions immediately as we require the validation of momentum. But as you can see from the activity our conviction was pretty strong.
The outcome of this trade is represented in 'B'.

At least we fulfilled our own promise. For a clearer view, click here.

We were fortunate to have bought at good levels (between 50.5 sen and 54.5 sen mostly). In these kinds of situation anything beyond 60 sen is a bonus for us in the context of the trade. We sold the majority of this position at 63 sen by 11:30AM. REVENUE ended up hitting a high of 69 sen on this day. 

'C' was when it became apparent that our exit from this trade was justified somewhat. Just after the afternoon session opened, REVENUE fell from 65 sen to a low of 57 sen.

Note that we were not expecting the stock to drop back to its intraday low of 50 sen, but we were mindful of the possibility. We have traded volatile stocks enough times to know that this can happen, even though in this case it did not.

This goes back to our point at the beginning; there is no way to prove what we had expected, thought of, or anticipated. But it did help anchor our conviction to exit. We are skittish enough that when the profits turn big really fast, we try to get out quickly to avoid an erosion in our paper profits.


Duration : 9:15AM - 3:45PM, 20 July

Strategy : Continuation of momentum, 'second wave' upward volatility

Outcome : Losses

Notice the big green candle on the left. In one 15 minute period (starting around 10:45AM), REVENUE's stock went from 68.5 sen to 72.5 sen; that's a major 6% move in such a short time. It was clear that the stock was testing the previous resistance point of 74 sen; this happened the day before, on 19 July, where the stock shot upwards from 64 sen to 74 sen.

So, since the day before, the stock had exhibited an upward bias and saw buying support near the 68-70 sen level. We were keen to accumulate a position at this point with the expectation that REVENUE might fly past 75 sen quickly; in other words, another new high for the recently listed stock.

However, this did not happen the way we thought. Here's where another loopy, unprovable theory of ours come in. (Editor's note : Perhaps one day, with an actual budget or research grant, we might be able to prove this.)


As a trading outfit, we live and die by the existence of what we call 'speculative capital'. This represents the pool of money being spent by retail investors to chase promising leads, which in turn causes stock prices to skyrocket.

We can apply speculative capital theory in different ways, but to give one simple example: on a really bad day on Bursa Malaysia, with most stocks in the red and one good looking new listing (like REVENUE), speculative capital is likely to be concentrated in that just-listed stock. There is nothing else that looks good to buy - at the same time, the new listing is clearly market neutral, so it is not vulnerable to the broader market negativity.

NOVA was another ACE Market listing that proved to be really successful. Speculative capital flowed into it (we can't prove this but the underlying philosophy stands) since the market open on 20 July. It was traded at a huge premium to the IPO price, too; exactly like REVENUE did.

In our view, this meant that currently available speculative capital has been halved. Investors are now chasing both NOVA and REVENUE. Even worse, there is a good likelihood that some are selling their profitable holdings in REVENUE to buy more NOVA shares.

And as we mentioned in the tweet, sometimes a market can be bad enough that speculative capital can be halted (Editor's note : Nothing is exactly market neutral if the KLCI fell by 100 points in one day, for example). We saw high volatility and a reversal in capital flows on July 20; stocks that were rising in the morning suddenly went into the red by lunchtime.

So we decided to exit and absorb the losses. We built a not-too-large position at 72 sen or so. We got out at the 70 sen mark as we expected this point to be breached. Our eventual loss from this came to about RM1K.


Again, we have to stress this : we had to make assumptions for the sake of preserving our capital position. It's the natural consequence of operating with imperfect information.


Duration : 3PM, 23 July to 10AM, 25 July

Strategy : Continuation of momentum, 'second wave' upward volatility

Outcome : Profitable, but less than expected due to sudden volatility in the stock

If you notice the chart, you can see that the stock is taking its sweet time to consolidate. By 23 July it has become clear that our previous concern of the stock dropping back to 60 sen were unfounded. We also noticed clear accumulation activity as the stock stubbornly stayed at the 68-70 sen level.

Knowing this, we were on standby for another of those quick breakouts; this tends to happen when a big block of shares is suddenly cleared - when the clearance happens near the previous resistance point, it's a validation of momentum, and the stock is set to break new highs. (Editor's note : Most of the time, anyway, but not all the time.)

The key to outsized profits is, as usual, to accumulate a manageable position at first. And when the validation occurs, it would be time to go all in. Sometimes we would buy as much as the stock as we can, at any price, when our conviction is strong enough.

'F' proves that we sensed a major move wayyyy before it actually occurred. This led us to start buying.

'G' was barely minutes later. This was a clear signal for us to buy more. Our previous expectation suddenly became plausible; there was no time to waste.

40 minutes later, to be precise!

And 'H' of course is a little dose of humble bragging. Hey, we have to prove that this blog is worth reading, right?
Market close, 23 July

At this point our paper profits from this phase stood at RM12K. The stock closed at 80.5 sen on this day, or yet another intraday high.

The next day - 24 July - we were willing to ride this trade out. Initially we were convinced that the stock can reach as high as 85 sen per share or beyond. We were even willing to lose some of our paper profits to be able to stay in this trade. Our expectation was modest; the stock doesn't have to move too much during the day as long as it's stable. The best case scenario for us would be a flat stock price during much of the day, followed by a late upward move.

This was almost exactly what happened. REVENUE was stuck at 78 sen for most of the day before it staged a late move. Renewed buying activity drove it to 82.5 sen quickly, or a quick 6% gain.

However, there was a catch in this. In a 15 minute timespan, the stock went from hitting an intraday high (82.5 sen) to plunging to an intraday low (75.5 sen). This sudden volatility was a serious sell signal for us, and it brings us to our next unprovable theory.

We believed the move to 82.5 sen was a false breakout, followed by an immediate dumping of shares by those holding high volumes of REVENUE. An 8% downturn in 15 minutes is too much for us to handle. We also believe that following this phase, it will be far more difficult for REVENUE to maintain its momentum and break through to a new high. As shown in 'I':

 Well, we're disclosing it now.

In short, we believe the momentum has been halted. This meant it was time to get out. We ended up selling our holdings at 78 sen on 25 July. Our eventual profits came to about RM6.5K, or a big reduction from that 12K in paper profits. But that's OK.

So how has the stock done since 25 July? Here's the daily chart from 25 to 31 July:

It's basically done... not much since. Notice that REVENUE's hovering between 76 sen and 78 sen, and it has been nowhere near its highest point of 82.5 sen. This can still change, of course, but we're no longer in this. Once momentum is gone, there's not a lot of short term opportunities.

So, despite our loony theories, our call to exit turned out to be the right call. In Phases One and Three, we also made profits without actually buying the shares, which essentially means we achieved pure profits with no money down. RM27K worth of profits.

Our advice; don't be afraid to make stupid assumptions if you end up profiting from them. Nothing is better than a well-executed trade; the profits naturally will come.