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Straits Times 3,114.16 -11.98 -0.38%
Hang Seng 26,719.58 -128.91 -0.48%
Dow Jones 26,819.28 -206.60 -0.76%
Shanghai Composite 2,938.14 -39.19 -1.32%
Markets Likely To Be Whipsawed In Coming Weeks
Corporate Digest, Perspective | 03 December 2012
By: Ernest Lim
Articles (134) Profile

Asian stocks notched their second consecutive week of gains amid optimism over US lawmakers that they are closer to a deal to avert the fiscal cliff and also partly due to the oversold nature market prior to the two-week rebound.

Table 1: Indices’ performance over the past two weeks

Source: Bloomberg; Ernest’s compilations

On 16 November, I pointed out there is likely to be a near term technical rebound as oversold pressures escalate. Immediately after that, within the span of two weeks (16 to 30 November), Standard & Poor’s 500 (S&P 500), together with Hang Seng Index (HSI) and Straits Times Index (STI) had surged and notched a 4.1 to 4.2 percent gain.

S&P 500 closed at 1,416 on 30 November, which is about 1 percent higher than my upper target of around 1,400. Personally, without a resolution on the fiscal cliff and as fund managers close their books ahead of the year end, it is unlikely that S&P 500 can continue its upwards ascent and perhaps notch a higher high than in September 2012 without a pullback. The next significant resistance is around 1,425 to 1,433 where the upper range was the neckline of the double/triple top formation. (See Chart 1 below)

Chart 1: S&P 500 chart – significant resistance around 1,425 to 1,433

Source: CIMB itrade platform complimentary charts

For the STI, it has performed extremely well and closed 4.2 percent higher since two weeks ago. In fact, STI has exceeded my expectations by breaching 3,015. Nevertheless, similar to the S&P 500, STI is unlikely to continue its upward march and perhaps exceed this year’s high without a pullback. The next significant resistance is around 3,106 to 3,120.

Also, on 16 November, I have mentioned two stocks SembMarine and STX OSV Holdings which had reached all-time or near all-time oversold levels and they may be worth a quick punt on technical reasons. Both had done well. Based on their closing prices of 30 November, SembMarine and STX OSV had outperformed the STI’s 4.2 percent rally by appreciating 10.9 percent and 7.8 percent respectively since 16 November. (see Table 2 below)

Table 2: Stocks’ performance since 16 November

Source: Ernest’s compilations

*I have earlier informed my clients on SembMarine & STX OSV on 15 & 16 November on their interesting chart developments.

Looking ahead to this coming week (3 to 7 December), it would be good to see the Shanghai market’s response to the release of China manufacturing PMI (PMI was 50.6, at a seven month high but trailed consensus estimate of 50.8) which was released on 1 December. On Monday, China would also release its Non-Manufacturing PMI and HSBC Final Manufacturing PMI. Central banks such as RBA, BOE & ECB would be meeting on Tuesday and Thursday respectively. For the European policy makers, there is a Eurogroup meeting on Monday and Europe Finance Ministers meeting on Tuesday. For the U.S economic data, investors would be watching ISM manufacturing data on Monday, ADP Non-Farm Employment Change and ISM Non-Manufacturing PMI on Wednesday and the Jobs report and Consumer Sentiment on Friday. It is noteworthy that there may be distortions in the US economic data due to Hurricane Sandy. (Please refer to “Summary of Economic Calendar for the Week ahead (SIN time)” below for a more comprehensive list of important economic events.)

In a nutshell, personally, I have and would continue to sell on rally (but would be keeping a certain percentage in equities). In addition, I am of the view that markets are likely to be whipsawed by the back and forth talks on the fiscal cliff and as volume dries with funds closing their books for the year.

Lastly, I would be away from 7 December onwards and would be back around 26 or 27 December. The next bi weekly market update would be on 31 December. Hereby wishing all Shares Investment readers a Merry Christmas in advance!

Please note that the above is my personal opinion and may not cater to your specific risk profile etc. The question of when to buy/sell and what to buy / sell differs greatly from individual to individual. Furthermore, it is extremely important to bear in mind that the market outlook is never static. It can change suddenly if there are sudden big events unfolding from the market – some events can happen as quickly as a few hours.

STI supports and resistances are:

Current: 3,069.95

Support 1: 3,063

Support 2: 3,044-3,048

Support 3: 3,033

Support 4: 3,019

Support 5: 3,008-3,015

Resistance 1: 3,078

Resistance 2: 3,088-3,090

Resistance 3: 3,106

Resistance 4: 3,111

Resistance 5: 3,120

*Supports and resistances are not static levels. They may be subject to change daily.

*Summary of Economic Calendar for the Week ahead (SIN time)

3 Dec, Mon: (CNY) Non-Manufacturing PMI / HSBC Final Manufacturing PMI; (EUR) Spanish & Italian Manufacturing PMI / Europe Final Manufacturing PMI / Eurogroup Meeting; (GBP) Manufacturing PMI; (USD) ISM Manufacturing PMI / Final Manufacturing PMI / Construction Spending;

4 Dec, Tues: (AUD) RBA Meeting; (EUR) Spanish Unemployment Change / ECOFIN Meetings; (GBP) Construction PMI; (USD) FOMC Member Tarullo Speaks;

5 Dec, Wed: (AUD) GDP; (EUR) Spanish & Italian Services PMI / Europe Final Services PMI / Spanish 10-y Bond Auction / Retail Sales; (GBP) Services PMI; (USD) ADP Non-Farm Employment Change / ISM Non-Manufacturing PMI / Factory Orders / Crude Oil Inventories;

6 Dec, Thurs: (EUR) Revised GDP / German Factory Orders / ECB Meeting; (GBP) BOE Meeting; (USD) Unemployment Claims;

7 Dec, Fri: (AUD) Trade Balance; (GBP) Manufacturing Production / Industrial Production; (EUR) ECB President Draghi Speaks / German Industrial Production; (USD) Non-Farm Employment Change / Unemployment Rate / Prelim UoM Consumer Sentiment;

8 Dec, Sat: (USD) Consumer Credit.

*All economic data especially China data (if any) are subject to changes without notice. The above list is not exhaustive. I have merely listed the economic data which I feel has more impact to the market.

Please refer to Forex Factory Calendar for a more detailed list of economic events.

P.S: The above is part of a bi-weekly newsflash which I send out to my clients on a weekend.

All the best for your investment and trading!

Information sources: Various sources such as Bloomberg, Dow Jones, Forex calendar, Zacks Investment Research, Reuters, SGX, Yahoo Finance, and Business Times etc.

Disclaimer
The information contained herein is the writer’s personal opinion and is provided to you for information only and is not intended to or nor will it create/induce the creation of any binding legal relations. The information or opinions provided herein do not constitute an investment advice, an offer or solicitation to subscribe for, purchase or sell the investment product(s) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of this information. Investments are subject to investment risks including possible loss of the principal amount invested. The value of the product and the income from them may fall as well as rise. You may wish to seek advice from an independent financial adviser before making a commitment to purchase or invest in the investment product(s) mentioned herein. In the event that you choose not to do so, you should consider whether the investment product(s) mentioned herein are suitable for you. The writer will not, in any event, be liable to you for any direct/indirect or any other damages of any kind arising from or in connection with your reliance on any information in and/or materials appended herein. The information and/or materials are provided “as is” without warranty of any kind, either express or implied. In particular, no warranty regarding accuracy or fitness for a purpose is given in connection with such information and materials.
Ernest Lim is a CFA, CA and has worked at GIC Special Investment. He has a solid feel of the markets and financial world and is now a remisier.

Please click here for more information about this author.


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