Wednesday, December 03, 2014

Market Outlook as at December 2, 2014

FBMKLCI tested its recent low of 1766 yesterday - it went as low as 1764 - before rebounding. This market is searching for a bottom. Once that's established, we may see the market trading sideways or begin another upleg. See Chart 1 & Chart 2.


Chart 1: FBMKLCI's weekly chart as at Dec 2, 2014 (Source: BTX)


Chart 2: FBMKLCI's weekly chart from Apr 2011 to Dec 2, 2014 (Source: BTX)

The question is whether the horizontal support od 1760-1770 will hold on the next test. If  we look at the index in July-September 2011, we saw FBMKLCI testing & trying to hold onto the horizontal line at 1470. When that support failed - due to persistent bad news flowing out of Europe - the index dropped to the next 2 levels of support at 1365 & 1300. If the same scenario is played out today, we might see the index testing the 1700 level or even the 1600 level.


Chart 3: FBMKLCI's weekly chart from Nov 2008 to Oct 2011 (Source: BTX)

Meanwhile European markets - represented by DAX - has recovered substantially over the past 4-5 weeks. I am doubtful that the DAX will be able to climb above its violated uptrend line. I believe the rally in DAX could have run its course and the correction is likely to kick in soon.


Chart 4: DAX's daily chart as at Dec 2, 2014 (Source: Stockcharts.com)

Meanwhile Nikkei and US markets - represented by S&P500 - are going higher. However, we can see that Nikkei will have to surpass the line connecting the recent peaks at 17700 and S&P500 will have to do the same at 2080-2100. 


Chart 5: NIKK's daily chart as at Dec 2, 2014 (Source: Stockcharts.com)


Chart 6: S&P500's daily chart as at Dec 2, 2014 (Source: Stockcharts.com)

The question on everyone's lips is when will crude oil prices bottom. I believe that a bottom is not far away. WTIC broke its long-term uptrend line, S-S1 at USD94-95 (if we ignored the prices at the bottom in 2009). If we take the 2009 extreme prices into consideration, the tentative uptrend line support is now at USD50-60. Whether the support is at USD50 or USD60 depends on whether you are drawing the tentative uptrend line using the intra-day low prices or the end of month prices.


Chart 7: WTIC's daily chart as at Dec 2, 2014 (Source: Investorshub)

For those who are crying for higher crude oil prices, this article from Jeremy Grantham in Business Insider on shale oil is worth reading. Grantham, a well-established fund manager, believes that shale oil is a very large red herring. He pointed out that shale oil well's productive period of about 2 years renders many forecasts of US's upcoming crude oil productive prowess a pipe dream, like pigs can flying. Check it out for yourself.

Based on the above, I believe that we can consider slow buying in the market now, especially for O&G stocks that had been badly sold down. My preference is for large well-capitalized O&G stocks such as Armada & UMWOG.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of any of the stocks or indices shown above.

8 comments:

Chin Hoe said...

hi alex, for long term investor, perhaps this is time to accumulate some O&G company... Mind to share your thought that your preferences O&G stocks over others especially for us who are not well analysis about O&G company.. thanks..

Kai-Foong Kok 郭继锋 said...

Many papers favor SKPETRO as their O&G top pick. Do you think it is good too?
Thank you!

luckystock2 said...

Hi Alex ,
Can you comment on Media's technical outlook ?
Tx!

Alex Lu said...

Hi Chin Hoe

For long-term investment, you can consider slow accumulation of O&G stocks because they have been badly beaten down. However, you have to make a distinction between good stocks and not-so good stocks.

Alex Lu said...

Hi Kai-Foong Kok

SKPetro is an exciting O&G stock. It has gained a foothold in petroleum exploration & production with the acquisition of Newfield Malaysia.

However, its gearing at 2x is higher than Armada, UMWOG and Dialog (at about 1x).

However, a small exposure to SKPetro can be considered given its fast growth & exciting prospects.

Alex Lu said...

Hi luckystock2

Media is testing its horizontal support at about RM1.80. If this support failed, it may go to RM1.60.

At RM1.84, Media is trading at a trailing PE of 14.5x (based on annualized EPS of 12.7 sen).

I think the stock is a HOLD at current price. At RM1.60, it would be a good BUY.

Kai-Foong Kok 郭继锋 said...

Thank you, Alex :)

lai said...

Well done, Alex,

Sharp and precise analysis. Not like some other blogger who either talk wind or sell some mindless trading system