Thursday, January 08, 2009

Plantation outlook as at January 7, 2009

The Plantation index rose sharply in the past few days, in tandem with the rise in CPO prices. While the Plantation index is undergoing some correction today, it may find support at the 100-day SMA of 4500, before rebounding. Further upside is possible but I doubt it would be able to overcome the strong resistance posed by the horizontal line of 5250. In the medium-term, I believe the Plantation index would likely to trade in a range between 4000 & 5000 for many months, before the direction of its next move is clear. This conclusion is based on the steepness of the 100-day SMA.


Chart 1: Plantation's daily chart as at Jan 7, 2009 (source: Tradesignum.com)

Similarly, I believe that CPO's upside move will face strong resistance from the horizontal line of RM2250.


Chart 2: CPO's weekly chart as at Jan 7, 2009 (source: ifs.marketcenter.com)

From the table below, I have computed the retracement of the Plantation index & 3 Plantation stocks (i.e. Asiatic, KLK & IOI). We can see that the Plantation index has retraced 90% of its gain from May 2005 to its all-time high, during the recent downtrend. In the current rebound, it has recovered (or, retraced) 32% of the lost ground. The 3 stocks had retraced between 83% & 96% of their gain from May 2005 to its all-time high, during the recent downtrend. In the current rebound, they have recovered between 26% & 37% of the lost ground. The stock that put in the biggest swing to the downside as well as the upside is IOI. Its downside move was exaggerated by reports of huge forex losses (which was subsequently confirmed to be true) & the recovery that followed was stronger than other plantation stocks (benefiting from a lower base).



Based on the above, I believe that those who have positions in the Plantation sector should take some profit when the index reaches the 5000-5250 level. Those who are nimble enough may trade the current pullback by opening positions when the index touches the 4500 level. It is advisable that you should set protective stops for any positions opened.
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5 comments:

  1. aLanThursday, January 08, 2009 1:31:00 PM

    Hi Alex,

    Thank you for sharing.

    I noticed Crude Oil price has recently overcome 30day MA and been resisted by 60day MA. The chart seems to show that it is a consolidation move, and I think Crude Oil price can go north again within these few days.

    What is your opinion?

    ReplyDelete
  2. Alex LuThursday, January 08, 2009 5:22:00 PM

    Hi JunK,

    I think your outlook for Crude oil could turn out to be true.

    Crude oil (based on WTIC contract) has broken to the upside of the accelerated downtrend line on Dec 31, 2008. Two factors could have contributed to the breakout- Isreal’s military attack in the Gaza strip (which heightened geopolitical risks) as well as positive effect from commodity index re-balancing (of the DJ AIGCI and the S&P GSCI indices). For the latter, see the link below.

    So, the short-term outlook for crude oil (as per WTIC) has now shifted to neutral. If WTIC can surpass USD53 (the intra-day high recorded on Dec 15, 2008) over the next few weeks, then a medium-term uptrend would commence. Over a long-term, WTIC would still have to overcome the downtrend, starting at the market top in July 2008. That downtrend line has a resistance presently at USD70.

    Thanks for the comment.

    http://v2.ftalphaville.ft.com/blog/2009/01/05/50769/beware-commodity-index-rebalancing-ahead/

    ReplyDelete
  3. herbertThursday, January 08, 2009 5:25:00 PM

    Dear Alex,

    Based on your analysis..
    Which plantation stock would be safe play? SIME? KULIM?

    Or you still prefer on IOI & Asiatic? May i know why?

    ReplyDelete
  4. Alex LuThursday, January 08, 2009 6:02:00 PM

    Hi Herbert,

    I think Sime is a safe stock because it hasn't gone up much. Its technical outlook is however not very exciting. While many would naturally gravitate for a solid blue-chip like Sime, I have some concerns. I have already noted one of them in my earlier post, i.e. the thin profit margin of its plantation division. The other concern is that Sime can be a very dull stock. If not for the restructuring of the Sime group in 2007 --to create the largest oil palm company in the world-- Sime's share price would have probably never had the sharp price run-up in 2007, or a much milder price run-up. So, Sime is a safer but slower stock.

    Like IOI, Asiatic & KLK, Kulim has broken above its long-term or accelerated downtrend line. A short-term uptrend line can be seen for Kulim. One can be positive on Kulim's short-term outlook, provided the short-term uptrend line is still intact.

    ReplyDelete
  5. herbertThursday, January 08, 2009 6:51:00 PM

    Thanks Alex..

    I'm thinking to load in KULIM or RSAWIT since it has potential to making profit.. I will practice hit and run approach in year 2009... 10% or 20% gains enough... Pls, need your comment on my pick.. :)

    I agree with u that SIME is like rock. hardly move. seems it only can move if foreign fund come in.. but it is unlikely due to recession now.. Most analyst said Foreign fund may sell off their share by this 1st or 2nd Quarter..

    ReplyDelete