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Straits Times 3,134.71 +18.54 +0.59%
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Cyprus Crisis Hits Asian markets, US Markets Resilient
Perspective | 25 March 2013
Related stocks:
B16
By: Ernest Lim
Articles (134) Profile

Over the past two weeks, Asia Pacific indices were mixed as strengthening US economic data and the assurances from Ben Bernanke (that he was not going to stop QE anytime soon) were offset by the weaker than expected economic data from Europe as well as the Cyprus crisis. (See Table 1)

Table 1: Indices’ performance over the past two weeks

Source: Bloomberg; Ernest’s compilations

I have been citing strong price action in the Standard & Poor’s 500 (S&P500) for one to two months. S&P500 dropped for three consecutive days from 15 March, Friday to 19 March, Tuesday but recovered most of the losses by 22 March, Friday. Based on the chart, although more and more market watchers are talking about a possible correction (or at least a pullback), there is yet to be a sell signal yet. The trend is still up for now. (See Chart 1 below)

Chart 1: S&P500 trend is still up for now

Source: CIMB itrade complimentary chart (22 Mar 13)

Asian markets painted a different picture. The Hang Seng Index (HSI) is bearish after the failure to hold above the 21-Day & 50-Day EMA. The trend is down in the short term as depicted by the downwards sloping 21-Day & 50-Day EMA. However, a good support is around 21,741-21,771 (200-Day EMA and 38.2 percent Fibonacci retracement). At 21,741-21,771, HSI would have fallen around 9.2 percent, almost a correction (Generally speaking, a 10 percent or less retracement from the recent peak signifies a technical trend correction). RSI’s recent low was around 32.4-32.8 which was the low last seen on 5 June 2012 (current RSI was 36.3). I.e Barring a catastrophe from Cyprus, downside may be capped around 21,741-21,771 which may mean only about 374 points drop from the current 22,115.

Chart 2: Hang Seng Index failed to hold above 21-Day & 50-Day EMA

Source: CIMB itrade complimentary chart (22 Mar 13)

For the Straits Times Index (STI), it found support at my previously mentioned 3,249-3,250 for the past two weeks (past two week intraday low was 3,248.40). STI is still range bound around 3,235-3,320 since 24 January 2013 with ADX at 10.1. RSI, MACD and MFI have shown bearish divergences with price. Although the bearish divergences may indicate higher odds of a breakdown from the trading range, it is not strong enough to justify a strong sell signal. Probability of a downside break may be around 60 percent (for) -40 percent (against) especially in view of HSI’s potential near term downside support of around 21,741-21,771.

Even if STI breaks below the lower range of 3,235, the measured downside is around 3,150 which is about 109 points or 3.3% from the current spot of 3,259.

Chart 3: STI in consolidation mode

Source: CIMB itrade complimentary chart (22 Mar 13)

Two weeks ago, I mentioned that Guocoleisure is in a flag formation. It has successfully broken the resistance at $0.755 with volume. Measured technical upside target is around $0.845. After my writeup on 17 February (posted on Sharesinv on 20 Feb http://www.sharesinv.com/articles/2013/02/20/guocoleisure-%e2%80%93-portfolio-of-undervalued-assets/), UOB Kayhian and CIMB Research both released unrated reports on 13 Mar and 15 Mar respectively. In the latest issue of The Edge, they have also done a short writeup on Guocoleisure. Readers who are interested can drop me an email at crclk@yahoo.com.sg where I can send you the latest unrated analyst reports.

Chart 4: Guocoleisure – broken out of flag formation. Measured target price: $0.845.

Source: CIMB itrade complimentary chart (22 Mar 13)

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: 3,258.57

Support 1: 3,249-3,250

Support 2: 3,236 – 3,239

Support 3: 3,231

Support 4: 3,218 – 3,221

Support 5: 3,205

Resistance 1: 3,272

Resistance 2: 3,280-3,284

Resistance 3: 3,300

Resistance 4: 3,310

Resistance 5: 3,317-3,321

*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 Mar, Sun: (EUR) Eurogroup meetings;

25 Mar, Mon: (USD) FOMC Member Dudley Speaks / Fed Chairman Bernanke Speaks;

26 Mar, Tues: (USD) Core Durable Goods Orders m/m / Durable Goods Orders / S&P/CS Composite-20 HPI y/y / CB Consumer Confidence / New Home Sales / Richmond Manufacturing Index;

27 Mar, Wed: (GBP) Current Account / Final GDP; (EUR) Italian Retail Sales / **Italian 10-y Bond Auction; (USD) Pending Home Sales m/m / Crude Oil Inventories / FOMC Member Evans Speaks / FOMC Member Rosengren Speak;

28 Mar, Thurs: (EUR) German Retail Sales m/m / Europe Retail PMI; (USD) Final GDP q/q / Unemployment Claims / Chicago PMI;

29 Mar, Fri: (JPY) Prelim Industrial Production m/m; (EUR) French Consumer Spending m/m; (USD) Personal Spending & Income / Revised UoM Consumer Sentiment;

*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.

**Italian 10-y Bond Auction is tentatively scheduled for release on 27 Mar.

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

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.

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

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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