The valuation of companies or businesses in the oil & gas sector has suffered from the sharp downturn in the price of Crude Oil. As noted in a previous post, Crude Oil prices could be poised for a reversal. From Chart 1 below, we can see a potential 'head-and-shoulders' reversal pattern taking shape (with H denoting the 'head' & 'S1 & S2' denoting the 'shoulders'). A reversal is deemed completed if the WTIC index crossed above the neckline, currently at USD49-50. A reversal in Crude Oil prices would provide the catalyst for a re-rating of companies or businesses in the oil & gas sector.
Chart 1: WTIC's daily chart as at Jan 8, 2009 (source: Stockcharts.com)
The main business of Maybulk is its shipping business. While the freight rates had dropped for many shipping companies, we have seen that Maybulk was not badly affected (go here). The collapse of freight rates can be clearly seen from the daily chart of the Baltic Dry-bulk Index (below). Nevertheless, there is sign that the BDI may have bottomed.
Chart 2: BDI's daily chart as at Jan 13, 2009 (source: InvestmentTools.com)
A recovery in freight rates & Crude Oil prices could lead to a re-rating of Maybulk. From Chart 3 below, we can see that Maybulk has broken above its immediate downtrend line resistance at RM2.50. The next resistance will be the 200-day SMA of RM3.30 (which coincides with the long-term downtrend line) & the strong horizontal resistance of RM3.50.
Chart 3: Maybulk's daily chart as at Jan 8, 2009 (source: Tradesignum.com)
Based on the above, a shareholder of Maybulk should track the performance of Crude Oil prices & freight rates closely, with an eye on adding to his position in this stock.
Hi again Alex,
ReplyDeleteI hope the bottom confirmation last time hold.
Now, the BDI. I also realized that BDI had hit its bottom. To catch MAYBULK, which already flew, is quite risky now. Waiting for the price to retreat to EMA20 then buying. if it goes below EMA20, cut loss.
Other than MAYBULK, what other shipping stock can be traded? Do you have any idea?
Hi Ijanmaster,
ReplyDeleteMaybulk has certainly moved up quite a bit in the past few weeks. A good entry level is between RM2.30 & RM2.50. There is enough negative news to weigh down the share price in the next few weeks.
Besides Maybulk, we have our home-grown giant MISC & smaller shipping companies such as Hubline & Sweejoo. While MISC would satisfy the requirement for safety in investment, its share price hasn't dropped much & would unlikely to go up very much in the near future. I haven't looked into Hubline & Sweejo's financial results in order to comment on them. I would stick to Maybulk for now.