Petrobras (PBR) broke out of its March/April flat patch on May 9 and 10 following a well-received earnings report on May 8. PBR briefly topped 17 on May 16, but has been in a downtrend since. We kept the stock rated Buy because 1) we had a profit, 2) the stock was still above its 25-day moving average and 3) trading volume on the stock was gradually declining after its first down day.
But PBR gapped down this morning, falling from yesterday’s close of 15.1 to open today at 13.1 and has been skidding slowly lower. The most likely cause of this correction is the company’s decision to cut diesel prices by 10% in hopes of helping to resolve a three-day trucking strike in Brazil. Truckers are protesting high fuel prices and the strike is devastating Brazil’s economy, which is still recovering from a major recession.
After this kind of gap down PBR is likely to need some time to recover. Accordingly, we recommend selling PBR and holding the cash.
We have no other changes to the Cabot Emerging Markets Investor’s portfolio now, but the weekly update will be issued this afternoon after the market closes.