Maybulk- a recovery rally?

Recently, we saw huge volume of CWs traded in the market. This reminded me of the active trading of CWs in 1st quarter 2007. As you may know, CWs were first introduced in 4th quarter of 2006 and trading interest only picked up a few months later. The increased activities coincided with the sudden bull rally in early 2007. I started covering CWs in October 2006, with an introductory post (here) and the first two updates (here & here). 1st quarter 2007 was a crazy period when we witnessed trading volume of 3 billion securities traded a day- something which we have not seen again. In fact, the trading in the 1st quarter of 2007 was substantially contributed by penny stocks and cheap CWs. The market corrected sharply after the CNY 2007 (which fell on February 4, 2007). After that baptism of fire, punters treated CWs with greater caution until now.

Recently, we saw CWs attracting huge volume & chalking up spectacular gain. Among the notable gainers were CWs for such stocks like JCY, Proton & MAS. While the gain in the CWs is justifiable due to the rise in the price of the underlying shares, one couldn't help but get that deja vu feeling.

One good example of a share which has risen sharply is Maybulk (see Chart 1). Along with that sharp rally, we saw even more spectacular rise in the related CWs- Maybulk-CB and Maybulk-CC (see Chart 2). Maybulk has declined steadily over the past 4 years (after peaking at RM5.50) to hit a recent low of RM1.40 (see Chart 4). Is that reason enough to buy this stock? Based on the daily chart (Chart 1), we can see that the technical outlook is promising as the stock has broken above its intermediate downtrend line as well as its 100-day SMA line (around RM1.73-1.74). Can it continue to rally?


Chart 1: Maybulk's daily chart as at Jan 6, 2011 (Source: Tradesignum)



Chart 2: Maybulk-Cb & Maybulk-CC's daily chart as at Jan 6, 2011 (Source: Tradesignum)



Chart 3: Maybulk's monthly chart as at Jan 6, 2011 (Source: Tradesignum)

I do not see any catalyst for a re-rating in the stock. Shipping rates are adrift again after a short rally in October 2011 (see Chart 4) while its latest financial performance is disappointing, to say the least (see Chart 5).


Chart 4: BDI's weekly chart as at Jan 6, 2012 (Source: investmenttools.com)


Chart 5: Maybulk's last 22 quarterly results

Based on the above, I still feel that it is too early to be bullish about this stock. Maybulk is trying to find a bottom and a long-term investor should wait for a pullback before committing funds into the stock. If there is a sharp pullback in the share price, we can expect a bigger percentage pullback for the CWs. Be careful when you trade in CWs!