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Straits Times 3,110.87 -16.87 -0.54%
Hang Seng 26,164.53 +115.81 +0.44%
Dow Jones 26,252.24 +49.51 +0.19%
Shanghai Composite 2,895.99 +12.56 +0.44%
Hey Mr. Market, Which Way Are You Going?
Trend Spotting | 18 June 2010
By: Xavier Lim
Articles (51) Profile

In Issue 382, when the STI was still at 2,860, this writer has mentioned that the local equity bellwether was going into a consolidation phase and will be hovering at its support and resistance lines of 2,700 and 2,810. Technically, although the chart suggests that the STI is still within the downtrend channel, the index has pushed above the immediate support-turned-resistance line of around 2,810. However, the breakthrough of 2,810 was not a convincing rebound and could be a false signal. On the other hand, the Dow Jones Industrial Average (Dow) has broken away from the downtrend channel but is still below its immediate support-turned-resistance line cum psychological level of 10,500.

All these suggest that both indexes may drop back to the downtrend channel again. If the STI moves back to the downtrend channel, stop above the previous low of 2,650 and then rebound to break through 2,810 again, then another uptrend channel is likely to form. Therefore, it is better for us to wait for some confirmation before taking any big positions.

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On 11 June, disappointing retail sales report served to undermine the market’s fragile sentiment and inspired fears of a double-dip recession as the weakness in consumption followed the disappointing jobs report a week ago. The Dow ended lower on 14 June, after giving up a more than 120-point advance in the first half of the day, after another downgrade of Greece’s sovereign ratings offset hopes of recovery in Europe. However, the Dow rallied to end sharply higher on 15 June, with equities gaining momentum as the S&P 500 Index broke through its 200-day moving average and the euro held above $1.23, signaling growing confidence in Europe’s ability to deal with its debt crisis. With the mixed economic indicators and with Mr. Market’s mood swinging up and down everyday, we are in a situation that is unlikely to be resolved in the very near future. Please fasten your seatbelts and hold on for the ride.

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Armed with an arsenal of investment knowledge, Xavier is the Senior Research Editor at Shares Investment.

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