Executive Summary

ST Engineering (S63.SI) continues to stand out as a defensive growth name with a technically strong structure, even when broader markets remain cautiously optimistic amid ongoing geopolitical and macro uncertainties After spending several months consolidating between the $8.00 and $9.00 range, the stock has now broken decisively above the $9.00 level, signalling a potential resumption of its longer-term uptrend. Importantly, this consolidation took place above rising medium and long-term moving averages, suggesting healthy digestion of gains rather than trend deterioration.

The recent appearance of two fresh 1GT Bullish signals in January, both of which remain active, marks a key development. These signals indicate renewed buying interest emerging from a higher base. With moving averages aligned to the upside and $9.00 now acting as a new higher support zone, the setup continues to look bullish. As long as prices continue to hold above this level and no 1GT bearish signal appears, ST Engineering’s breakout suggests that this move may still be in its early stages, with higher levels potentially coming into focus.

Singapore Technologies Engineering Ltd (S63.SI) is one of Singapore’s largest engineering and defence-related companies, with diversified exposure across aerospace, defence & public security, and smart city solutions. As a core SGX blue-chip, it is often viewed as a defensive growth name, especially during periods of market uncertainty.

ST Engineering continues to display a well-structured and sustainable uptrend, especially with the breakout above the 9.00 level. 

After a strong advance earlier last year, the stock entered a prolonged consolidation phase between roughly the $8.00 to $9.00 zone for at least 3 months. 

Importantly, this consolidation unfolded as 100-day (red) and 200-day (blue) moving averages continue to slope upwards, signalling digestion of gains rather than trend deterioration.

ST Engineering’s 20-day moving average (green line) has started to turn up again. 

Most notably, 2 fresh 1GT Bullish signals have recently appeared in January, and that signal is still playing out. 

This is a key development, as it suggests renewed buying interest emerging from a higher base, often a precursor to a continuation move in an established trend.

The 100-day moving average itself continues to slope upward and stays well above the 200-day (blue line), confirming that the longer-term trend remains firmly bullish.

The $9.00 level now acts as an important near-term support, where it has previously consolidated below this level and managed to break above this level recently. As long as prices hold above this level, the 1GT Bullish signals will continue to play out. 

For a more conservative approach, traders can look to accumulate on any short-term pullback that remains above the $9.00 support area, which could offer re-entry opportunities for traders looking to ride the trend further.

Those with a more aggressive stance can consider entering on a breakout above $10.00, which could signal a continuation of strength and momentum, where target could be revised higher towards $11.00. 

Overall, with the valid 1GT Bullish signals, moving averages aligned to the upside, and price breaking out from consolidation, ST Engineering remains technically strong. 

Until a 1GT bearish signal appears, the trend bias stays bullish, with the current move suggesting that this breakout may still be in its early stages.

So, how does one take a position in ST Engineering to ride the uptrend further with lower initial capital outlay?

Investors who wish to be exposed to potential upside moves in ST Engineering shares can consider using ST Engineering call warrants to magnify the potential share price return using lesser capital outlay and without the risk of margin calls, while those bearish can use a put warrant.

Investors who wish to be exposed to potential upside moves in ST Engineering shares can consider using ST Engineering call warrants such as XX5W to magnify the potential share price return using lesser capital outlay and without the risk of margin calls.

Macquarie has a tool known as the Simulator Exposure to help investors estimate their investment and returns with warrants versus the underlying share, as well as the maximum holding period if one were to purchase the warrant.

Exposure Simulator: type in number of shares you would buy to see the equivalent amount of warrant investment in chosen warrant to achieve the same level of stock exposure

Using the example of an investor bullish on ST Engineering shares above the support level of $9 and keen to enter position for further upside to $11 from here, an investor will have to spend $95,700 (before trading costs) if he/she were to buy 10,000 units of ST Engineering shares at $9.57. However, if the same investor were to use trending ST Engineering call warrant XX5W to participate in ST Engineering’s further share price upside, the investor will need only to invest $18,965 to buy ~399,200 units of ST Engineering call warrant XX5W to achieve similar level of exposure.

This is because, XX5W has an effective gearing level of 5.1 times (at the point of using the tool) and will move approximately 5.1 times more than ST Engineering shares, and costs $0.047 per warrant versus ST Engineering’s $9.57 share price on 20 January.

Entering the target exit level of $11 under the “Share price” column under the “Simulated breakeven” section, which is 14.9% higher than the current stock entry price, and moving the number of days the warrant is held to say 33 days later, you will observe that the warrant will now increase by 5 times i.e. +76.6% which translates into a projected absolute dollar gain of $14,373 versus the $14,300 gain if one were to buy 10,000 units of ST Engineering shares today instead.

Exposure Simulator: type in the target exit/profit-taking level and increase the number of days held to simulate the expected returns on the warrant versus holding ST Engineering shares

The longer ST Engineering shares takes to rise to the target $11 exit level, the more the warrant holding cost will set in to erode the geared return of the warrant. For example, if ST Engineering took 60 days instead to reach $11, the call warrant will now only increase 63.8%, with an absolute dollar gain of the $11,977, less than if one were to hold onto ST Engineering shares, although the percentage gain is still 4.3 times more.

To know how long one can hold onto warrant XX5W for based on the $11 exit level, increase the holding period to the point where the warrant no longer makes geared returns versus the stock i.e. 146 days where the warrant will see only a 12.8% gain compared to ST Engineering’s 14.9% gain. If ST Engineering is trading less than $11 in 146 days, a warrant investor who bought this warrant should consider cutting his/her losses anyway.

Warrants will see lower geared returns with longer holding periods. Increase the holding period to see the maximum holding period one should hold onto the warrant for

Investors should note that leverage works both ways. Whilst warrants can be used to magnify one’s exposure and potential gains from favorable price moves in the underlying shares, losses can also be magnified when the price moves against the investor. 

Additionally, using a ST Engineering call warrant will only allow you to participate in the share price move, and is not equivalent to investing and holding the shares directly.

The sharing on how one can take a position using warrants has been contributed by Macquarie Warrants Singapore who is the issuer of these warrants listed on SGX.

About the Author - Joey Choy

Joey is Singapore’s renowned mentor on how to make an income by trading the stock market, an author and one of the most-watched, quoted and followed stock trading trainers in Singapore. Over the years, he has conducted numerous full house seminars, enriching thousands to trade more profitably. 

Joey’s come back story from a S$740k debt has been featured in the Business Times and inspired thousands in Singapore. In less than 3 years, he is highly regarded as one of the Top Tier Remisiers (Stock Brokers) and Traders, bagging numerous yearly awards like Top Trading Representative and Top CFD Achiever every year from 2014 to 2023 in Phillip Securities.

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