PBBank may have peaked?

Today, there is an interesting article in the Edge entitled "PBBank may have peaked". This story raised a few interesting questions, which I have listed below:
1. Has PBBank peaked or made a top?
2. Is it a cyclical or secular top?
3. What is its technical outlook for the short-term, medium-term & long-term?

The article pointed out that Citigroup & a Singapore-based research house, Cazenove have both downgraded PBBank to either a "sell" or an "underperform", while Maybank maintained a "buy" for this stock. The reasons given for the downgrade is that PBBank was struggling to maintain its strong double-digit growth, based on the recently released results for FY2008. In addition, PBBank has lowered its cash dividend for FY2008 to preserve capital as the country would likely to slide into recession in the first quarter this year.


Chart 1: PBBank's monthly chart as at Feb 3, 2009 (source: Quickcharts)

From the monthly chart above, we can see that the monthly MACD had hooked down on 6 occasions (denoted as A-F) over the past 18 years. On 4 such occasions (A, C, D & E), the share price had only dropped marginally after the monthly MACD hook-down was sighted. On all these occasions, we can see that the 5-month & 10-month SMA did not even cross below the 20-month SMA. This probably reaffirmed the reputation of PBBank as a good long-term investment stock. There were 2 occasions where the share price had dropped sharply after the monthly MACD hook-down was sighted. These were in 1997-98 (during the Asian Financial Crisis) & now (because of the Global Financial Crisis); where the monthly MACD dropped deep into the negative territory & the 5-month & 10-month SMA crossed below the 20-month SMA.

Now, let's address the 3 questions raised earlier. Using the monthly MACD, we would have called a cyclical top in February 2008, leading to a partial or complete sell-off of our position in PBBank. If you have done that [say, at the opening price in March 2008 (at RM10.30)], you would be happy for a while as the share price dropped further to a low of RM9.35. Then, lo & behold, PBBank made a dramatic recovery, which saw its share price regained all the lost ground over the next 3 months & even made a new all-time high of RM12.00 in May 2008. Thereafter the share price tumbled down & on hindsight we know that the May 2008 high of RM12.00 was the top for PBBank in this cycle. See the daily chart below (from Tradesignum, which has finally been updated!).


Chart 2: PBBank's daily chart as at Feb 3, 2009 (source: Tradesignum.com)

I would classify PBBank's May 2008 high as a cyclical top, at this point in time. It could be a secular top, if the share price dropped below the long-term uptrend line, SS (see Chart 1 above). At this point in time, PBBank's share price is comfortably above the long-term uptrend line, SS as well as the accelerated uptrend line, S1S1.

Looking at Chart 2 above, we can see that PBBank's share price has broken above its medium-term downtrend line. A short-term uptrend line can be seen, with support at RM8.40. Based on this, I believe that the short-term & medium-term technical outlook for PBBank is sideway. A bottoming phase could set in at the price range of RM8.50 to RM9.00. However, if PBBank were to drop below the short-term uptrend line as well as the medium-term downtrend line, then it may test the accelerated uptrend line, S1S1 (presently at RM8.00). If this also failed, then it may test the long-term uptrend line, SS (presently, at RM6.30-50). I would rate the latter as a good entry to this stock.

Note: Assuming you had ignored the monthly MACD hook-down in February 2008 & were still holding onto PBBank in May 2008, when should you sell. You should sell when PBBank slid back below RM11.80, after making the all-time high of RM12.00. That's according to the 2B Rule, which states that "...(in) an uptrend, if a higher high is made but fails to carry through, and then prices drop below the previous high, then the trend is apt to reverse."