Boston, MA 10/07/2014 (wallstreetpr) – Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) (Closed: 15.80, Up: 13.10%) made a huge jump on the back of further advancement of the Brazilian Presidential candidate Aceio Neves, strengthening the possibility of seeing the end of price control in gasoline. An upgrade in rating to “Buy” by UBS analysts and a recent discovery of gas at Espirito Santo Basin didn’t hurt the stock either as every factor accumulated to reverse the downtrend so sharply. The late hours saw some normal profit booking coming at the higher levels but the sharp spike in volume was encouraging for the bulls, which rose to 97.50 million against the average of 30.5 million.
The Monday jump of Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) made a high at $16.34, overlapping with the September 12 swing low of $16.11, negating one of the most bearish possible scenarios but not all. This stock has a history of making grinding up moves, moving just a bit in a very long period and then crashing vertically, as evident from the price action in the last 2-3 years. The latest example comes from the fact that the last intermediate rally from $10.20 to $20.94 took more than 6 months but nearly 80% of it was retraced in less than 6 weeks. The bearish domination is clear.
The long term chart of Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) clearly shows a huge bear market from 2008 and no considerable bear market rally since 2009. Only on a fresh yearly high above $20.94 would signal a significant change in the structure and a long term rally towards $32. The recent bearish crossover between the 20 and 50 Day moving averages is not very supportive of any bullish scenario too.
The sharp rally yesterday may well turn out to be a knee-jerk reaction only. It may more prudent to use any rally now to exit the stock and wait for the base-building process to finish with a break above $21.