The Thailand SET closed at 1587.01, down 1.03% for the week, despite the fact that the EU accepted Greek proposals for a 4-month extension on Monday. The put-call option ratio, calculated using open interest volume for the SET50 index, consisting mostly of large-cap companies, spiked to 2.22 at the close on Friday, from 2.02 last week. 

In the derivative markets, a put-call ratio over 1.0 means investor sentiment is bearish. A put-call ratio of 2.22 would be considered as “extremely bearish”. Thai investors should get ready for even more volatile markets as the Thailand SET is going to increase its derivatives sales. 

The Thailand Securities and Exchange Commission loosened up its rules on Thursday on how money managers deal with their holdings of derivatives and structured notes. The funds will now be able to own securities tied to all investable assets, instead of only products linked to limited types of investments such as gold, crude oil and interest rates. 

What the heck is a structured note? A structured note is a complex hybrid security that includes several financial products, typically a stock or bond embedded with a derivative, for example 80% bonds and 20% option contracts. In theory, the combination of financial products is unlimited. 

Structured notes can provide favorable downside protection, meaning the protection against losses in case of a decline in the value of an underlying investment. Investors, however, may want to carefully read the fine print before considering investing in structured notes.

The price to earnings (P/E) multiple for the Thailand SET surged 14.3% to 21.64 in February, compared to 18.91 in January, the highest P/E multiple since January 2010. Weak corporate earnings are beginning to make a dent in the Thailand SET P/E multiple and have put pressure on the Thailand SET. 

PTT Pcl [SET:PTT], Thailand’s largest fully integrated gas and oil company, posted on Friday last week, its worst-ever quarterly net loss of 26.6 billion baht for the October-December quarter, versus a 14.8 billion baht profit a year before. For the full year of 2014, PTT said their net profit plunged 40% to 55.8 billion baht.

Kasikornbank Pcl [SET:KBANK], Thailand’s fourth-largest lender by assets, didn’t fare well either as the bank said, on Tuesday last week, that its fourth-quarter net profit rose 5% to 9.97 billion baht from a year earlier, but down 20.4% from the previous quarter, missing the average analyst forecast of 10.5 billion baht. KBANK shares are down 5.24% year-to-date.

The Thailand SET continued to slide as it was unable to break out the short-term resistance (R-R). In the SET chart pattern, a bearish head and shoulders chart pattern, having the neck lines between the 1062 and 1591 levels, has emerged. The head and shoulders pattern is confirmed if the SET breaks below the 1570 level. In that case, the near-term technical projection is 1520.

The Moving Average Convergence/Divergence (MACD) is bearish and signaling a sell. The SET might not get much support from the U.S. markets next week as most of the U.S. economic data reported this week was weak.