DBS – hits 52-week high, all-time overbought since 1991! (1 Dec 16)

DBS hit another 52-week high today. It has surged 19% from an intraday low of $14.97 on 9 Nov 2016 to $17.82 on 1 Dec 2016. This has significantly outperformed the STI by a mile, as STI was only higher by 6.0% over the same period.

 

What has caused the sharp rally in DBS?

Some of the possible reasons may be

1. Since Donald Trump’s victory, the market has repriced in faster inflation in the U.S. due to Mr Trump’s infrastructure pledge. This has caused a surge in US Dollar and bond yields, especially on longer-dated debt. This bodes well for the banks, as they can benefit from rising net interest margins. Most analysts believe that DBS is primed as the best beneficiary from this scenario. Table 1 illustrates the banks’ performance;

Table 1: Local banks’ price performance

banks-valuation-1-dec-16

With regard to the point above, not all the analysts hold the same view. UBS believes that firstly 3M SIBOR and SOR have not moved much since Trump’s victory. Furthermore, they believe, rising rates may not be net positive to the banks in “late stages of credit cycles because of the impact on debt service burden and asset quality.”

2. Bank lending is up 1% in October, the first year on year increase in the past 12 months;

3. Market seems to be pricing in the “worst is over” for the banks due to their exposure in the oil and gas and property sector. For example, based on a Straits Time article on 26 Nov 2016, there is more government financing aid to be dished out to the beleaguered oil and gas sector. However, whether the worst is “really” over remains to be seen;

4. Month end window dressing.

 

Chart analysis

Based on Chart 1, DBS is on a strong uptrend, as depicted by its upwards sloping exponential moving averages (EMAs). All the EMAs are rising with golden crosses formed. However, there are some noteworthy points on the chart.

a) There seems to be a “hanging man” formation in the candlestick chart. However, this needs further price confirmation such as a gap down, or a long red candle with volume.

b) RSI hits 87 today. This is the highest level since 1991 and indicates extreme overbought conditions.

c) Other indicators have also hit unsustainable levels. For example, MFI hit 100%, the maximum reading.

Based on the above factors, there is a good chance that there may be some technical retracement in the near term. However, this is likely to be a retracement, and not a trend reversal.

Based on Table 1 above, average analyst target and estimated dividend yield are $17.27 and 3.4% respectively.

Near term supports: $17.60 / 17.55 / 17.35

Near term resistances: $17.83 / 17.95 / 18.00

Chart 1: DBS all-time overbought since 1991!

dbs-chart-30-nov-16

Source: Chartnexus as on 30 Nov 2016

 

Conclusion

The above write-up summarizes the recent share price movements on the banks, especially DBS which has surged, resulting in extreme overbought conditions on its chart. DBS’s share price will be interesting to observe in the next few days on whether there is a retracement.

 

Disclaimer

Please refer to the disclaimer HERE

Leave a Reply

Your email address will not be published. Required fields are marked *