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Wilmar: Mr. Market reacts to weaker earnings.

Thursday, May 10, 2012

Wilmar's net profit for 1Q 2012 tumbled 34%, year on year. Mr. Market is showing his displeasure in the usual way.

Let us draw some Fibo lines. I am using the high of 15 February at $6.05 and the low of 9 April at $4.76. I am doing this in my office and cannot post the chart here. So, you would have to do it yourself if you want to see the chart.

It is interesting how price gapped down massively at the start of the trading session just now and hit the 138.2% Fibo line and bounced up. At this moment, we have a black hammer that fills the area between the 123.6% Fibo line ($4.46) and the 138.2% Fibo line ($4.26). Could we see price going to $4.11 which is where the 150% Fibo line approximates?

The very high volume up till now is ominous and if this continues throughout the day without price breaking resistance provided by the 123.6% Fibo line, it could herald further weakness to come. Momentum remains negative and the bearish crossover of the MACD with the signal line suggests that things could get worse. The OBV is in decline and it looks like distribution is ongoing.

Fundamentally, Wilmar's management has suggested that 1H 2012 is likely to be challenging. However, the longer term prospects for the company should remain positive as a growing middle class in emerging economies demand better nutrition. In fact, revenue improved 10% year on year which suggests that demand is robust. So, I will want to add to my long position when the dust settles.

Why not buy now? With price action wedged between 123.6% and 138.2% Fibo lines, anyone buying now would want to buy closer to the 138.2% line which is currently acting as support. Would it hold up or would we see the next golden ratio at 150% tested for support?

In any technical analysis book, we would find that a hammer either black or white is considered a bullish reversal signal. However, one stick patterns are not terribly reliable. Also, the trading session has only begun. How would things look at the end of the day?

I still like Wilmar's businesses and its large regional footprint. Its weakening share price presents a chance to accumulate which would allow me to benefit from the company's possibly stronger performance in future. I will keep an eye on things in the meantime.

See: 1Q 2012 Results Briefing.


Ray said...

haha, i was about to perform my role of a human stock alert but looks like u have been alerted.

yeah, i got burnt man. :(

AK71 said...

Hi Ray,

It might make you feel a little better when I tell you my loss here has moved into the 5 figures realm. :_(

Ray said...

well, it doesnt make me feel better coz we are in the same boat.

when dust settle will pick up more.

AK71 said...

Hi Ray,

It is indeed so. Will have a broom and dust pan ready. ;)

FoodieFC said...

I am vested in this too.

I agree in long run this is still good. Might average down but when is the right time? (thats everyone's question)

I have a question. How come all the comodity stocks are doing badly in the past week. Look at Olam, noble, Golden-argi. All going downwards. Was there something I missed or do not know off?

AK71 said...

Hi Foodie FC,

Apparently, commodity prices have been retreating, if I understood correctly the stuff I have been reading online. It seems that it is seasonal and weak prices are not going to be permanent. Good reason to stay invested and even add to long positions. :)

Ray said...

Commodity is known to be cyclical. As an economy moves into recession, commodity demand slows. Similarly when the economy moves out of recession, commodity demand picks up. Now with the global economy being dragged down by China's slow down + Europe's mess, the general feel is commodity stocks are not going to do well.

AK71 said...

Hi Ray,

Could Wilmar's share price test the lows of the global financial crisis in early 2009? Of course, it could but would it?

I am inclined to believe that it would not as its business would remain supported by strong fundamentals in Asia. Demand remains robust.

Its problem stems from diminished margins and it would have to do a better job to improve on margins. As it is a company with a good track record, I am willing to believe that it would deliver better results in time.

CK said...

Hi AK, Wilmar seem to broke the Fibo 150%, think that it will head to Fibo 161.8% as next support. Maybe can get some when it hit that support lvl of 161.8%?

Ray said...

I believe the company wont fold up. thats for sure.
but whether the stock price will move back to the $6 anytime soon, I'm not that optimistic.

Not just for Wilmar, but for Noble and Olam too.
Fundamentally, I dont think Asia is that great.
Japan is quite bad.
China is slowing.
Who can dig us out of this economy like what China did in 09?
Europe is very bad (or could even turn worse).
The saving grace is USA seem to be improving very very slowly.

AK71 said...

Hi CK,

The MACD is still in decline. Generally, we want to see the MACD rising as the share price declines. That is a positive divergence and tells us that there is support. In fact, that was the picture for Wilmar until it announced its huge earnings reduction.

Certainly, we can second guess Mr. Market but how good are we at that depends on Lady Luck and she is as whimsical as Mr. Market is perverse. Haha... ;p

AK71 said...

Hi Ray,

Well, Asia is the only bright spot now in the world unless we include Latin America. So, I like to be a bit optimistic. :)

I am not going to hazard a guess whether Wilmar is moving back to $6 a share and when. I will however say that if Wilmar's share price declines further, I would like to buy more.

When its share price finds a base as it surely would, I hope the basing process is a longer one as it would provide clarity and opportunity for accumulation. Those sharp rebounds which Wilmar's share price is known for are really touch and go and few could react fast enough. :)

Ray said...

This is when our FA + TA skills will be put to the test :)

AK71 said...

Hi Ray,

Test? I shudder at the thought. I hate tests! ;p

FoodieFC said...

Hi AK71,

what is Wilmar all time low price?

AK71 said...

Hi Foodie FC,

If I remember correctly, in its early days, it was less than a dollar a share. Of course, back then, it was a very much smaller company. ;)

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