AMERICAN stock markets tumbled on Wednesday as a poorer earnings season (from UPS, Caterpillar, P&G, Dupont Co and Pfizer Inc) and a strong US dollar caused investors to take profits there. The S&P 500 Index fell 27.39 points to close at 2,002.16 points while the Dow plunged 195.84 points to end at 17,191.37.
The FBM KLCI index moved in a weaker range of 31.04 points for the week with lower volumes of 1.88 billion to 2.05 billion shares traded. The index closed at 1,782.18 yesterday, down 13.7 points from the previous day as blue-chip stocks like AMMB Holdings Bhd, Hong Leong Bank Bhd, Hong Leong Financial Group Bhd, Petronas Chemicals Bhd, and Tenaga Nasional Bhd caused the index to fall on foreign selling and liquidation activities. The ringgit remained much weaker against the US dollar at 3.6285 as Brent crude oil remained stable at US$46.40 (RM168.43) per barrel.
The index rose on a rally from the 801.27 low (October 2008) to the previous 1,826.22 all-time high (May 2013) and it represents an extended Elliott Wave “Flat” rebound in a “Pseudo-Bull” rise completed. The next few months’ index price movements since May 2013 have key swings of 1,723.74 (low), 1,811.65 (high), 1,660.39 (low), 1,805.15 (high), 1,759.66 (low), 1,882.20 (high), 1,769.80 (low), 1,838.69 (high), 1,802.88 (low), 1,896.23 (high), 1,837.28 (low), 1,879.62 (high), 1,766.22 (low), 1,858.09 (high), 1,671.82 (low), and 1,810.21 (high).
Most of the index’s daily signals are positive (except Stochastic). As such, the index’s clear support levels are seen at 1,671, 1,738 and 1,770, while the resistance areas of 1,782, 1,810 and 1,858 will cap any index rebound.
The KLCI’s 18 and 40 simple moving average (SMA) depict an emerging uptrend for its daily chart. However, the price bars of the index are now between the 50 and 200 SMA and remain in a neutral position on that front.
The recent fall from its all-time high of 1,896.23 saw a low of 1,671.82. The rebound from 1,671.82 stalled at 1,810.21 (on Jan 27, 2015), which is where the key 62% Fibonacci retracement level lies.
Due to the deteriorating tone for the KLCI, we are recommending a chart “sell” on Petra Energy Bhd. Petra Energy released its third quarter of financial year 2014 (3QFY14) results at the end of November 2014, and is expected to announce its 4QFY14 results sometime at the end of February 2015. For its 3QFY14 results announcement, the group saw its nine-month (9MFY14) accumulated profit improve.
Petra Energy’s revenue rose 25% to RM417 million in 9MFY14 from RM333.4 million in 9MFY13, while profit before tax expanded correspondingly by 15.8% to RM19.8 million in 9MFY14 from RM17.1 million in 9MFY13. According to Petra Energy’s announcement, the strong improvement in profitability was attributed to positive contribution from the integrated brownfield maintenance and engineering services segment.
Overall, Petra Energy may have improved its profitability in FY14 but investors seem to have taken a more macro approach and discounted the improved profitability as falling crude oil prices and the weak outlook for the oil and gas industry continue to cast a bearish outlook for the sector.
A check of the Bloomberg consensus reveals that three research houses cover Petra Energy, with a “hold” call, a “buy” and a “sell” call. This stock currently trades at a price-earnings ratio of 15.8 times while its price-to-book value ratio of 0.84 times indicates that its share price is trading at a slight discount to its book value.
Petra Energy’s chart trend, on daily, weekly and monthly time frames, is very firmly down. Its share price has made a large decline since its major daily Wave-5 and recent high of RM3.16 in June 2014. Since that RM3.16 high, Petra Energy fell to its January 2015 recent low of RM1.32.
As prices broke below their recent key critical support levels of RM2.38 and RM1.98, look to sell Petra Energy on any rebounds to its resistance areas as the MAs depict very firm short- to long-term downtrends for this stock.
The daily, weekly and monthly indicators (like the CCI, DMI, MACD and Stochastic) have issued sell signals and now depict very firm indications of Petra Energy’s eventual move towards much lower levels. It would attract firm selling activities at the resistance levels of RM1.33, RM1.98 and RM2.38. We expect Petra Energy to witness weak buying interest at its support levels of RM1.19, RM1.25 and RM1.30. Its downside targets are at RM1.31, RM0.80 and RM0.21.
Lee Cheng Hooi is the regional chartist at Maybank Kim Eng. The views expressed in the article are the opinions of the writer and should not be construed as investment advice. Please exercise your own judgment or seek professional advice for your investment decisions. Technical report appears every Wednesday and Friday.
This article first appeared in The Edge Financial Daily, on January 30, 2015.