Alert! Seatrium is testing an important resistance turned support area $0.087-0.088 – May be poised for a bounce (13 Feb 24)

February 13, 2024 el15

Dear all

Just wish to alert on Seatrium’s chart development which may be noteworthy.

Seatrium has tumbled approximately 26% from $0.120 on 2 Jan 2024 to $0.089 today. In fact, the sell-off has accelerated in the past ten trading days. Since 29 Jan, Seatrium has slid approximately 18% from $0.108 to $0.089 today. This 18% decline is accompanied with above average volume. Although such price action is not ideal, I wish to point out a few points.

a) Crucial resistance-turned-support area $0.087-0.088 likely will hold

Based on Chart 1 below, Seatrium is now testing a crucial resistance-turned-support area $0.087-0.088. Recall that Seatrium traded in a tight trading range $0.078 – 0.088 from 31 Aug 2021 to 3 Mar 2022, before breaking out. It subsequently went to a high of $0.151 on 5 Dec 2022. Based on my personal view, I suspect this area $0.087-0.088 should hold.

Chart 1: Key resistance-turned-support area $0.087-0.088 likely holds

Source: InvestingNote 13 Feb 24

b) Today’s price action seems to have buyers at $0.088

For most of the past ten days, based on my manual observation, Seatrium starts to move higher at the start of the day and very rapidly, selling starts to occur. However, for today, there seems to be buyers putting in at $0.088 whenever the buy queue gets filled.

c) Some bad news may arguably be priced in

Seatrium’s profit warning on 30 Jan cum CGSI research report citing a potential FY23 loss of S$655m and reduction in FY24F earnings estimates are perhaps some of the factors which caused the recent decline in Seatrium’s share price. Furthermore, the uncertainty over the potential outcome of Operation Car Wash hangs over Seatrium like a sword of Damocles. Notwithstanding this, I suspect some of these bad news may have already priced into the share price which has tumbled 26% since 2 Jan 2024.

d) Analysts continue to be largely positive post profit warning

Based on Figure 1 below, average analyst target price is around $0.170, indicating a potential capital upside of around 91%. Out of 9 analysts who cover Seatrium, there are 7 buys; 1 hold and 1 sell call.

Figure 1: Average analyst target $0.170, with a potential capital upside of 91%

Source: Bloomberg 13 Feb 24

e) Oversold RSI

Seatrium’s RSI hit 20.8 last Fri and closes today at around 26.3. Although this is not an all-time oversold reading, coupled with the above points a – d, I think the decline should find some support around current level $0.088.

Important noteworthy risks

Due to severe time constraints, the below is just an abridged list of risks. It is not an exhaustive list of risks.

a) Possibility of downward revision in target price post results

Based on my personal observation, there is a possibility that Seatrium’s target price may be trimmed post its results, as some analysts may have based their valuations on a multiple given to Seatrium’s price to book value.

b) Chart reading is subjective and stock can get lower

It is important to note that chart reading is subjective. Furthermore, if Seatrium breaks the crucial support $0.087-0.088 on a sustained basis with volume expansion, selling may accelerate. In addition, market may be aware of certain reasons causing this sharp drop which I am not aware of.

Readers are encouraged to refer to Seatrium’s analyst reports HERE for more information.

c) Buying before results may be risky

Seatrium reports results on 26 Feb before market opens. Buying before the results may be risky as it is difficult to project how its share price may react post results. A worse than expected results and importantly guidance may have an adverse impact to its share price.

Conclusion

The above is an abridged version and is written based mainly on a chart perspective. Given its 26% decline from $0.120 on 2 Jan, coupled with support levels and oversold RSI, it is likely that Seatrium’s decline should be arrested around $0.087-0.088. Notwithstanding this, chart reading is subjective and a sustained breakdown of an important support region may encourage more selling. Thus, readers are encouraged to refer to Seatrium’s analyst reports HERE for more information.

P.S: I am vested for trading only.

Disclaimer

Please refer to the disclaimer HERE