European chemical companies may retreat 8 pc: Technical Analysis

European chemical companies may retreat 8 pc: Technical Analysis

3:27 PM, 5th August 2011
European chemical companies may retreat 8 pc: Technical Analysis


LONDON, UNITED KINGDOM: The Stoxx 600 chemicals index, a gauge of Europe’s biggest chemical companies, may decline 8 per cent as it reverts to its long-term trend, according to a technical analyst at Collins Stewart Plc in London.

European chemical companies have outperformed the benchmark Stoxx Europe 600 Index by 56 per cent since the end of October 2008, according to data compiled by the newswire. The industry may now slide as much as 8 per cent as it returns to a trend line formed by the gauge’s lows over the past three years, Richard Bayley wrote in a note dated July 30.

“The sector has become overextended since September 2010,” said Bayley in a telephone interview. “Results from stocks such as Clariant and BASF have pushed the sector off from its peak, so we’ve asked ourselves, “Is this it?”

The gauge of European chemical companies declined 2.4 per cent last week as both Clariant AG, the Swiss maker of chemicals and paints, and BASF SE, the world’s biggest chemical company, published earnings that missed analysts’ estimates. BASF also forecast that growth will slow in the second half as customers have become less willing to place orders. Clariant slumped 14 per cent on July 27, its largest retreat since February 2003.

According to Bayley, France’s Arkema SA, which reports earnings tomorrow, “Might well be the catalyst for the fall.” Bayley said that Arkema may tumble 35 per cent to return to its long-term trend, while chemical makers Croda International Plc and Lanxess AG might plunge 32 per cent and 29 per cent, respectively.

“Investors should consider taking profits now and returning to the sector when our targets for the falls, which in some cases are as much as 35 per cent, have been met,” said Bayley.

In technical analysis, investors and analysts study price graphs to predict changes in a security, commodity, currency or index.

(C) Bloomberg News




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