PetroChina and Oil Stocks

A friend of mine asked my opinion on the HK-listed PetroChina. Here is my take:

Having done little research on the fundamental of the company, I have only the charts that I can use as the basis for making my decision. More specifically I rely on the stock's relative strength compared with the markets, in this case, with the US market which I try to beat [which by the way is the main objective of my investment], with the Hongkong market where the stock is traded, and with the oil market, i.e., the sector that the company is in.

The stock has been basically following the oil price. On the daily chart(below), PetroChina began to weaken against the US market (Nasdaq) on around Aug 17, at a price around 8.9. That's when the stock needed to be sold if he is conservative. If that wasn't enough, later, on Sept. 4, the second sell signal occurred when the daily chart showed a double bottom breakdown in relative strength against the Hengseng Index (orange line) as well as in stock price (blue), when the stock was traded around 8.8. That event also completed the formation of an head-and-shoulder which is a very bearish pattern.

For an investor of longer horizon, the stock was also showing weak relative strength against both Nasdaq and Hengseng index in mid-August, when the stock was traded at 8.5 HKD a share.

Conclusions: Without any other information and based solely on my technical analysis, the stock is a sell now. This probably applies to most of the oil stocks.

However I've also notice that, though in a down trend, this stock has shown strong relative strength against the overall Oil Index (chart not shown), which means that, relatively speaking, the stock is probably one of the better stocks among all oil plays. It may suffer less if the down trend continues and shot up more powerfully if the oil price recovers.

Different people invest with different horizon in mind. If he (1) is a long term investor, (2) if he is confident on the continuing strong demand for oil in the world, (3) if he is confident on China's pace of development, and (4) if he knows what the speculators are going to do with the oil price; and (5) if he has done extensive research on PetroChina's earning prospect and the research shows that the stock is undervalued, then it can be considered a buy or hold. However those are a lot of IFs, i.e., all are speculations. For me and for now, the real data I can trust are the charts. And the charts are telling me to sell. The up-trend may resume in the future, but I won't know that until that actually happens.

See Also: Link: Some Managers Dump Oil In Favor of Tech