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Straits Times 3,114.16 -11.98 -0.38%
Hang Seng 26,719.58 -128.91 -0.48%
Dow Jones 26,770.20 -255.68 -0.95%
Shanghai Composite 2,938.14 -39.19 -1.32%
Small Caps Continue To Snatch The Market Limelight
Perspective | 25 February 2013
By: Ernest Lim
Articles (134) Profile

There was mixed performance on the Asian markets. Hong Kong and China markets dropped as their governments stepped up efforts to curb property prices. In addition, markets were rattled by the FOMC (Federal Open Market Committee) minutes released on 20 February, Wednesday, citing concern from several policy makers over the pros and cons of further quantitative easing. See Table 1 below for the indices’ performances over the past two weeks.

Table 1: Indices’ Performance Over The Past Two Weeks

Source: Bloomberg; Ernest’s compilations

Since my writeup on 8 February, I mentioned that there is strong price action on the S&P500 chart despite indicators exhibiting bearish divergences. Indeed, S&P500 managed to breach 1,526 and closed a five year high of 1,530 on 19 February. However, it promptly staged the largest two day decline on 20 and 21 February (and even momentarily fell below 1,500), before staging a rally on 22 February. (See Chart 1 below)

Chart 1: S&P Fell After Notching 5-Year High Around 1,530. Support At 1,495 – 1,500; Resistance 1,531.

Source: CIMB itrade complimentary chart (22 Feb 13)

If we take a look at the Hang Seng market (see Chart 2 below), the index looks more bearish. Some might say it looks like a head and shoulders pattern with the neckline broken. Personally, I would think it seems to be in the process of forming a head and shoulders pattern (Do note charts are subjective and prone to multiple interpretations). Nevertheless, suffice to say that it is bearish as the uptrend line formed since September 2012 was broken with the 21-day and 50-day EMA (Exponential Moving Averages) turning down.

Chart 2: Hang Seng Index Broke The Uptrend Since September 2012.

Source: CIMB itrade complimentary chart (22 Feb 13)

For the STI, I mentioned two weeks ago that it has broken the uptrend line formed since 16 November 2012 (see Chart 3 below). Although it tried to climb above the green rising trend line on 13 February, it promptly moved below the rising trend line on 14 February. It seems to be consolidating around 3,250-3,320. Coupled with MFI, MACD and RSI’s bearish divergences, odds are less likely of an upside breakout for this consolidation.

Chart 3: STI In Consolidation Mode

Source: CIMB itrade complimentary chart (22 Feb 13)

In a nutshell, given the above indices’ charts, I would exercise caution. They are also some noteworthy events this coming week where the outcome and the market impact are difficult to judge with high probability.

1. Italy parliamentary elections spanning 24 & 25 February (Sunday & Monday);

2. Discussions on the US budget;

3. FOMC Chairman Ben Bernanke’s speech before congressional committees on 26 & 27 February (Tuesday and Wednesday).

Last week, for our Singapore market, Yamada Green Resources grabbed the market attention after announcing on 20 Feb that it had placed out shares to Hydrex International Pte Ltd which is wholly owned by Sam Goi Seng Hui. It shot up 126 percent from $0.135 (before the trading halt) to $0.305 upon announcement. During the day, the share price traded between a range of $0.260 to $0.350. Readers who are interested in Yamada can take a look at my writeup (link) where I visited their cultivation sites in China last year. http://www.sharesinv.com/articles/2012/04/27/yamada-green-resources-king-of-shiitake-mushrooms/

In addition, with reference to my previous biweekly newsflash, I mentioned that there are trading opportunities for stocks such as Eratat and Nam Cheong which are going to release results. I have also mentioned that for Eratat, the odds of an upside breakout for the flag formation are higher than a breakdown. Furthermore, I have pointed out that if it can breach the resistance $0.130 to $0.134 with volume expansion, a measured upside target price would be around $0.162. It managed to breach $0.134 on around 18 to 19 February with volume and closed at $0.157 on last Friday. (Eratat reached an intraday day high of $0.160 on last Friday) Readers who are interested to know more about Eratat can view my recent writeup here http://www.ernestlim15.blogspot.sg/2013/01/eratat-lifestyle-to-ride-on-chinas.html)

Nam Cheong’s share price also did well, jumping 12 percent over the past two weeks. Its results would be out on 25 February, Monday after trading hours.

Source: Ernest’s compilations

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: 3,288.13

Support 1: 3,273

Support 2: 3,257-3,259

Support 3: 3,249-3,250

Support 4: 3,231

Support 5: 3,222

Resistance 1: 3,300

Resistance 2: 3,312

Resistance 3: 3,320

Resistance 4: 3,334

Resistance 5: 3,350

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

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

24 Feb, Sun: (EUR) Italian Parliamentary Election Day 1;

25 Feb, Mon: (CNY) HSBC Flash Manufacturing PMI; (EUR) Italian Parliamentary Election Day 2;

26 Feb, Tues: (USD) CB Consumer Confidence / Fed Chairman Bernanke Testifies Day 1 / New Home Sales / Richmond Manufacturing Index;

27 Feb, Wed: (EUR) Retail PMI / Italian 10-y Bond Auction / ECB President Draghi Speaks; (GBP) Second Estimate GDP q/q; (USD) Core Durable Goods Orders / Durable Goods Orders / Fed Chairman Bernanke Testifies Day 2 / Pending Home Sales m/m / Crude Oil Inventories;

28 Feb, Thurs: (JPY) Manufacturing PMI / Prelim Industrial Production m/m; (EUR) French Consumer Spending / German Unemployment Change; (USD) Prelim GDP q/q / Unemployment Claims / Chicago PMI / FOMC Member Raskin Speaks;

1 Mar, Fri: (CNY) Manufacturing PMI / HSBC Final Manufacturing PMI; (EUR) German Retail Sales / Spanish, Italy & Europe Manufacturing PMI / Italian Monthly Unemployment Rate / Europe Unemployment Rate; (GBP) Manufacturing PMI; (USD) (USD) Personal Income & Spending / Final Manufacturing PMI / Revised UoM Consumer Sentiment / ISM Manufacturing PMI;

2 Mar, Sat: (USD) Fed Chairman Bernanke Speaks;

*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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