Selected penny stocks have been driven to new seven to nine year highs by speculative buying. Oceanus Group, which is still under the SGX’s watchlist, was queried by the Exchange on Feb 19. Its share price has surged since UOB Kay Hian pointed out that the company is attempting to turn around in a January report.

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Technically, Oceanus stock remains on an uptrend. However, quarterly momentum is falling, and it could continue to fall. This is setting prices up for a negative divergence with its quarterly momentum which is a sign of latent weakness. In addition, prices are at a record spread above their moving averages. In particular, prices are at an unsustainable 368% above their 200-day moving average. At any rate, with prices at 7.5 cents, they are soon likely to encounter resistance as they approach the 2012 breakdown level of 8.4 cents.  

SEE: STI hangs on at support, developers and REITs under pressure

The other penny stock that is at a seven year high is Samudera Shipping Line. In its chart, a clear negative divergence has formed between quarterly momentum and price. Quarterly momentum has not yet broken down, but it is likely to breakdown in March. Unlike Oceanus, Samudera Shipping’s fundamentals are sound, but speculative buying is likely to cause a bubble. Resistance is at 30 cents, and the breakdown level is at 25 cents.

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Samudera shipping - THE EDGE SINGAPORE

Obvious in the chart of the Straits Times Index is a sharp retreat by quarterly momentum. During the week of Feb 15-19, the index fell by 45 points to 2,880. This level takes the STI below its 50-day moving average which is turning down at 2,910. Support stays at 2,795 for the time being.