📈Having broken out of its $4.60 resistance level yesterday, $SATS(S58.SI)$ is seeing its short-term trading momentum further strengthened, on top of a constructive longer-term uptrend. With two consecutive 1GT bullish signals that emerged near the stock’s recent lows, renowned educator and trading remisier Joey Choy shares his view on where SATS could be headed from here
👀Read on for a commentary on how one can use a SATS call warrant to capture any potential short term upside in SATS shares using a smaller capital outlay compared to investing in the shares directly.
*Joey’s view doesn’t represent that of Macquarie’s
Executive Summary
SATS has strengthened its technical outlook after breaking above the key $4.00 resistance level, supported by improving momentum and a constructive long-term trend. The stock remains above its rising 100-day and 200-day moving averages, while two consecutive 1GT Bullish signals near the recent lows highlighted the return of buying interest.With $4.60 now acting as a potential support level, a sustained move above this area could pave the way for further upside towards the next major resistance at $5.20. As long as the $4.00 support continues to hold, the broader technical outlook remains favourable.
Singapore Airport Terminal Services (SATS) Ltd. is one of Asia’s leading providers of aviation ground handling, cargo handling, and airline catering services. Following its acquisition of Worldwide Flight Services (WFS), SATS has significantly expanded its global footprint, giving the company exposure to more than 200 airports across Europe, the Americas, Asia-Pacific, the Middle East, and Africa. As global air travel and cargo demand continue to recover, SATS is well positioned to benefit from higher passenger volumes, stronger cargo throughput, and the growing demand for aviation-related services.
From a long-term perspective, SATS has established a constructive uptrend, with prices trading above both the rising 100-day and 200-day moving averages.
This suggests that the broader trend remains healthy, supported by improving investor sentiment and continued buying interest over the longer term.
In the shorter term, momentum has strengthened further following a breakout above the $4.00 psychological level.
The 20-day moving average has turned decisively higher, reflecting improving short-term price strength as buyers regain control.
More importantly, two consecutive 1GT Bullish signals emerged near the recent lows, highlighting areas where buying interest returned as prices stabilised above the longer-term moving averages.
The subsequent rally reinforces the view that bullish momentum has continued to build with the current trend.
Price has recently broken above the key $4.00 resistance level, which has now turned into an important support zone.The stock is currently approaching the next major zone around $4.60, a level where we previously saw some selling pressure back in late June to early July.
The immediate support is around the $4.60 level, where it has just broken this level recently.
A sustained hold above $4.60 could pave the way for further upside towards the next resistance around $5.20.As long as prices continue to hold above the key $4.00 support, the current technical structure remains constructive.
So, how does one take a position in SATS to ride the uptrend further with lower initial capital outlay?
Investors who wish to be exposed to potential short term upside moves in SATS shares can consider using a SATS call warrant to magnify the share price return using lesser capital compared to a direct share investment and without the risk of margin calls.
There is currently only one SATS call warrant $SATS MB eCW261229(RRGW.SI)$ that is quoted on tight spreads and high liquidity.
Macquarie has a tool known as the Exposure Simulator 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 who is keen to buying into SATS as the stock trades at $4.68 - above the $4.60 resistance, the investor will have to spend $46,800 (before trading costs) if he/she were to buy 10,000 units of SATS shares at $4.68.
However, if the same investor were to use SATS call warrant RRGW to participate in SATS’ share price upside from $4.68, the investor will need only to invest $8,509 to buy ~327,300 units of SATS call warrant RRGW at $0.26 per warrant on 22 July to achieve a similar level of exposure.
This is because, RRGW has an effective gearing level of 5.5 times (at the point of using the tool on [date]) and will move approximately 5.5 times more than SATS shares.
Entering the target exit level of the next resistance of $5.20 under the “Share price” column under the “Simulated breakeven” section, which is 11.1% higher than the stock entry price of $4.68, and moving the number of days the warrant is held to say 24 days later, you will observe that the warrant will now increase by 5.5 times i.e. +61.5% which translates into a projected absolute dollar gain of $5,236 versus the $5,200 gain if one were to buy 10,000 units of SATS shares instead (assuming all pricing factors remain constant).
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 SATS shares:
The longer SATS shares takes to rise to the target $5.20 exit level from the $4.68 entry price, the more the warrant holding cost will set in to erode the geared return of the warrant. For example, if SATS took 80 days instead to reach $5.20, the call warrant will now only increase 30.8%, with an absolute dollar gain of $2,618, less than if one were to hold onto SATS shares, although the percentage gain is still around 2.8 times more.
To know how long one can hold onto warrant RRGW for based on the $5.20 exit level, increase the holding period to the point where the warrant no longer makes geared returns versus the stock i.e. 119 days from the entry date of 22 July, where the warrant will see no gain compared to SATS’ 11.1% gain. If SATS is trading less than $5.20 in 119 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 SATS 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.
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