THE relentless surge in oil and gas stock prices locally, coupled with strong gains in regional markets after the yen strengthened, helped the KLSE Composite Index (CI) stage a dramatic 11-point swing yesterday. From being down as much as 3.5 points, the benchmark index rebounded sharply to close almost 8 points or 1% up at 745 in the best trading day in nearly a month.
The volume and value of shares traded were the highest since Aug 28. A total of 708 million shares valued at RM1.35bil changed hands in the course of the day.
Stellar gains by the top three oil stocks Crest Petroleum Bhd, SCOMI GROUP BHD and Petra Perdana Bhd resulted in them pushing on to new highs, and pulling the share prices of other companies in the sector upwards as well.
But some analysts are now wondering when a correction in such stocks will come.
Crest has risen 25% in the past seven trading days and 36% this month. Scomi has added 19.5% over the past week and 75% so far in September. Petra which proposed yesterday a private placement of its shares and to split each RM1 share into two 50 sen shares has surged 36% since Sept 16 and 61% since Aug 29.
A technical correction is only natural, but it would be extremely short and shallow. And when that happens, it would be another opportunity to buy such stocks,'' said UOB KayHian head of research Lim Beng Leong. UOB KayHian estimates that the upward momentum in oil and gas stocks, especially the leaders in the group, could last between 17 and 51 months.
The recent sharp movements in the three leading oil and gas stocks also resulted in other companies in the sector making steep moves.
Loss making Tenggara Oil Bhd, which had, as far back as the KLSE's online records show, not made a quarterly profit since the quarter ended July 1999, saw its share price hit limit-up in afternoon trade to close at RM2.02, up 55 sen. The company's warrants too hit limit up, rising 34 sen to 86.5sen.
Many in the investment community are scratching their heads over the rise in oil and gas stocks since June, and raising questions about its sustainability.
Stocks can remain overbought for quite some time, sustained by momentum and volume, but the downside risk increases with each day,'' Mayban Securities technical analyst Heddy Huzaimi cautioned.
Based on technical readings, Heddy believes some of the oil and gas stocks are extremely overbought'' at current levels.
Meanwhile, MIDF-Sisma Securities analyst Kaladher Govindan said stocks like Scomi, Crest and Petra were trading at prospective earnings multiples of between 30 and 40 times.
The big question now is whether oil and gas stocks have run too far ahead of their valuations,'' he wrote in his research note on the sector issued yesterday.
He compared the current oil and gas euphoria to the tech boom of 2000, where share prices of selected companies soared 10-fold at the peak of the cycle.
On that score, there is scope for share prices of selected oil and gas companies to advance further,'' he said, but cautioned that only companies involved in upstream activities would benefit.
Chartist K.M. Lee said that technical indicators remained bullish and there was no sign that prices had peaked.
Therefore, these stocks are envisaged to surge further in the immediate term before the prevailing uptrend becomes overstretched.
For those who took up positions in these stocks recently and may want to ride the current wave for as long as possible, it is best they apply a trailing exit point to avoid being caught in case of a reversal,'' he said.
On the upside, resistance is anticipated at RM14.50 for Crest, at RM13.30 for Petra and at RM11.50 for Scomi. Immediate support for Crest, Petra and Scomi can be expected at the RM11.20, RM10.70 and RM9.50 levels, respectively,'' he added.
While oil and gas are definitely hogging the attention of punters and dealers and over the past week or so drawn interest away from other stocks in the market analysts are saying theme plays could now emerge in water-related stocks.
News that huge amounts of money will be spent in the water sector has seen some money being drawn into the sector.
Puncak Niaga Bhd is up 8% over the past seven trading days and closed yesterday at its highest point since March 29, 2000.
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