sg stock focus further weakness in oil may derail keppel corps recent up move 1847452017

Keppel Corp’s share price recent remarkable recovery of 57% from its January 2016 low of 4.64 to its recent March 2017 high of 7.23 had been directly correlated with oil price where the WTI Crude (futures) made a U-turn from its February 2016 low of U.S$26.05 per barrel. The fortunes of Keppel Corp’s share price is tied up closely with the price of oil because its Offshore and Marine  business division that had contributed a lion share (42% to 64%) of its total revenue for the last three years.

Since hitting a high of U.S$55.24 in early January 2017 for WTI Crude (futures) reinforced by a production cut  agreement between OPEC and non-OPEC members in November 2016, the WTI Crude (futures) have tumbled by 5.30%  in the last two months and broke below the psychological U.S$50.00 per barrel (printed a low of 47.09 on 14 March 2017). The main reasons are inventories build-up by U.S. shale producers coupled with a continued increase in U.S. oil rigs where the latest Baker Hughes report had shown an increase of 14 rigs last week to add up a current accumulated total of 631 rig counts, an 18-month high.  All these numbers from the U.S. shale production industry rekindled oversupply concerns. Secondly, it is the unwinding of record net long positions held by large speculators (hedge funds) on leverage oil products (futures & options)  derived from overoptimistic views on the recent production cut agreement lead by the Saudis to control supplies.

Interestingly, the recent decline of Keppel Corp’s share price has lagged behind from the fall seen in WTI Crude (futures) by around four weeks and lesser in terms of magnitude (5.30% versus 11.4% in WTI Crude) – refer to chart 1.

Therefore, if WTI Crude (futures) continues to slide and from a technical analysis perspective, a break below 47.00 is likely to open up scope for a potential steeper decline towards the next major support zone at U.S$39.20/$36.50 per barrel. If such a move materialises, it is likely to create a negative feedback loop into the movement of Keppel Corp’s share price that may see further downside pressure.

Chart 1 – Movement of WTI Crude (futures) & Keppel Corp’s share price

(Click to enlarge chart)

Now, let’s us take a look at the key technical elements of Keppel Corp.

Technical Outlook on Keppel Corp (SGX: BN4)

(Click to enlarge charts)

Key technical elements

• The recent multi-month up move from 15 September 2016 low has stalled right below a significant resistance of 7.44 which is defined by a confluence of elements. Firstly , it is the medium-term swing high area of 12 Oct 2015 that also coincides with a former major support formed in  October 2011 (see weekly chart). Secondly it is the upper boundary of the ascending channel in place since January 2016 (see daily chart). Thirdly, it is a Fibonacci cluster (38.2% retracement of the multi-year decline from March 2013 high to January 2016 low of 4.64 + 1.236 projection of the upmove from  January 2016 low of 4.64 to 07 March 2016 high of 6.34 projected from 15 September 2016 low of 5.16).
• The recent up move from November 2016 low has started to show signs of exhaustion. Firstly, the daily RSI oscillator has broken a major ascending trendline support in place since 18 January 2016 that corresponds with the start of the on-going medium-term up move seen in the price action of Keppel Corp. In addition, it still has room to manoeuvre to the downside before it reaches an extreme oversold level. Secondly, prior to the bearish breakdown of the aforementioned ascending trendline support, the RSI has flashed a bearish divergence signal at its overbought region. These observations suggests that upside momentum has started to wane which is likely to translate into a potential medium-term bearish reversal in price action (see daily chart).
• The significant medium-term supports rests at 6.34 (former swing high areas of 07 March 2016 & 12 December 2016) and 5.58 (the lower boundary of the ascending channel + close to the 61.8% Fibonacci retracement of the current up move from January 2016 low of 4.64 to 02 March 2017 high of 7.23).
• Keppel Corp is now trading cum dividend of $0.12 per share and will go ex-dividend on 26 April 2017.

Key levels (1 to 3 months)

Intermediate resistance: 6.93

Pivot (key resistance): 7.44

Supports: 6.34 & 5.58

Next resistances: 7.71 & 9.57  

Conclusion

As long as the 7.44 pivotal resistance is not surpassed, Keppel Corp may start to see a multi-month decline to retrace the current one year plus of up move from January 2016 low to target the next supports at 6.34 follow by 5.58 next.

However, a break above 7.44 may negate preferred bearish tone for a push up to test 7.71. Only a daily close above 7.71 is likely to see the continuation of the up move to propel Keppel Corp higher towards the next resistance at 9.57 (the major descending trendline from March 2013 high).

Charts are from eSignal

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