Looking at the numbers, I find valuation for Noble rather mind boggling. To buy at the current valuation, one must be extremely optimistic about the future earnings of the company. Well, Jim Rogers thinks that prices of commodities will continue to rise in the years ahead. If we believe him, then, it might be better to buy directly into commodities or companies producing these commodities rather than commodities trading companies. I remember Musicwhiz did some FA on Noble and Olam. So, I shan't go into details here. The link to his blog is in my blogroll. As is my style, if the FA fails, I do not bother to go on to the next step which is to do a TA.
However, what worries me is that even some usually very cautious investors I know are euphoric about Noble. From a TA standpoint, if the trend is not broken, continue riding it. Having said this, Noble's rapid climb in price does not look sustainable. So, I'm doing a TA out of curiosity. The negative divergence between price and volume on the weekly chart is quite plain to see. After breaking multiple wMAs in May, it tested the 100wMA support in July and off it went hugging the upper limits of the Bollinger bands since. The shorter term 20wMA has pulled away from the longer term 100wMA and 200wMA. The spread is now quite susbtantial. Using two sets of Fibo lines, it looks as if the current price of $3.25 is at resistane. A pullback is on the cards but with such positive sentiments bouying the counter, the 20wMA, at $2.70 this week, might just be able to support the price. That would be a 15% pullback. To my friends who are vested, stay vigilant. If the 20wMA breaks, there is quite a fair bit to fall.
Based on FA solely, it is hard to convince myself to touch Noble. There appears to be significant risks in the business; geographical spread, price & currency fluctuation, hedging risks, execution risk of various on going projects, political risks in some source countries, trade credit risks, etc, in addition, margins appears to be wafer thin vis-à-vis the business risks. But markets can be positive on a particular counter for weeks if not months plus the commodity theme would likely be around for a while. For this reason, I took a small position with a view to hold for medium term. A correction over time for MA to catch up is hence the preferred outcome. Should a pullback occur however, it could be an opportunity to get more involved as long as the 20MA holds. Else it is really a long way down as you said.
ReplyDeleteThanks for letting me know the problem you faced with posting comments. A fellow blogger tried telling me he couldn't post comments as well but I did not understand initially. Problem solved now although it's not the best solution. Well, whatever works. :)
ReplyDeleteFor Noble to do a correction using time, you would probably end up with a chart similar to Wilmar's and, yes, the 20wMA must hold. Let's hope the levitation spell lasts. The market can stay irrational longer than we can stay solvent or so the saying goes. ;)
The market can stay irrational longer in both directions.
ReplyDeleteYes, mentioning the words "rational" and "stock market" in the same sentence is hardly rational. ;-p
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