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Straits Times 3,134.71 +18.54 +0.59%
Hang Seng 26,664.28 +160.35 +0.61%
Dow Jones 27,001.98 -22.82 -0.08%
Shanghai Composite 2,978.71 -12.33 -0.41%
Markets Looking Shaky: An Analysis Of What The Charts Are Telling Us
Perspective | 19 April 2013
By: Gabriel Gan
Articles (41) Profile

It has been cities of different tales in the various major stock markets and financial instruments around the world: some tell a bullish story, some tell a bearish story while others are not telling us any stories. Singapore belongs to the third category!

What is plaguing our stock market? Where have all the investors gone to?

The Straits Times Index

With headlines saying that Singapore will experience slower growth and companies facing labour shortage does not help to encourage fund managers and investors. Between a country facing slowing growth and a country with an abundance of stimulus measures, which would an investor choose?

In actual fact, the stock market here has really not been up to very much since late last year even though the Straits Times Index (STI) has rallied rather strongly to current levels in tandem with just about every other stock market in the world. The STI rallied strongly from November all the way to February but it has not been doing much since then especially after the strong run-up for the penny stocks, small caps or micro penny, as some may call it. There have been textbook examples of how rallies have ended with the euphoric speculation in penny stocks, hence, the entire rally may have ended back then, now with the benefit of hindsight.

Ever since February, the blue chips have all been trading within a tight range with some rising and some falling. Yet remarkably, the STI has been trading between 3,250 points to around 3,320 points for almost three months since then despite the US market surging ahead with record-breaking feats. Earlier in February, I advised investors to hold onto the shares while giving the index some time to break 3,320 points but after four failed attempts to do so, I turned cautious and have not been too positive in my last two contributions to this publication. It is like a high jumper who repeatedly tries to clear a certain height but fails to do so, the athlete will run out of steam and may have lost the will to fight. Similarly, we are seeing signs of the same in the our stock market especially some property stocks such as CapitaLand and City Developments while strength in the banks have helped to cushion the losses in the property stocks.

Housing prices have slipped slightly in February and March ever since the government announced fresh measures to cool prices. When the news was released, the share price of the aforesaid property counters fell, then rose almost immediately as if nothing happened and has been drifting downwards all of a sudden. Is it the classic example of “pump and dump” for the large investors who wanted to get out of these two stocks and had resorted to pushing up the prices first so as to get out slowly by letting prices drift down slowly?

City Developments has a support at $10.68 versus the current price of $10.95. The sudden sharp fall from as high as $11.27 to the closing low of $10.95 on 17 April does not augur well, which means that the likelihood of the share price falling to the support level is almost as good as a done deal. Whether $10.68 can hold will depend on how the broader market performs and/or if the government comes up with fresh measures to take more wind out of the sails of the property boat.

CapitaLand looks even more precarious at $3.45 – only $0.05 away from its support at $3.40. The share price is now even lower than when the government announced property curbs in January. Below this, the next supports come only at $3.26 and $3.11.

While the STI is not yet on a downtrend like the Hang Seng Index (HSI) and the Shanghai Composite Index (SSE), the index looks like it is forming a rounding top after four failed-attempts to clear 3,320 points. A fall to 3,250 points and below will probably trigger more selling with the next support zone found only at 3,110-3,150 points.

We must now focus on the corporate results because this will make or break a particular stock, especially an index component stock. Remember how SPH (Singapore Press Holdings) was sold down from $4.68 to $4.23 just within a few days after it reported disappointing earnings? Coupled with plenty of component stocks going ex-dividend soon, the STI looks mightily precarious.

Dow Jones Industrial Average

The second-most bullish market after Japan, the DJIA looks like a picture of health without any bad news that may hit the market apart from some patchy data pertaining to jobs. Have investors finally realised that the stimulus measures are not doing much to help the real economy?

Judging purely from a technical angle, the DJIA looks to have peaked in the near-term on 11 April when it reached a high of 14,887 points. The index has been drifting downwards and has been exceptionally volatile, falling 266 points one day, rising 176 points the following day, and only to fall by triple-digit yet again the next day. This is atypical of a directional change in the market – either northwards and southbound – but in this case, it looks like the index may be looking for a correction that may not come almost immediately because there are still plenty of buyers who believe that the stock market is cheap and, most importantly, there are no bad news unless major US companies report shocking results.
It will not be surprising if the DJIA corrects soon but it may just drag for a week or two in a tug-of-war between the bulls and the bears before the latter prevails. Look out for 14,400 points as an important support level because, if broken, may see the index fall to 14,000 points or even as low as 13,800 points.

Hang Seng Index & SSE Composite

Since the start of February, both indices have been falling and is now firmly on a short- and mid-term downtrend. Both indices have tried valiantly to stage rebounds but the highs of each rebound have failed to clear the highs of the previous rebounds forming what is called a lower-high, or what laymen call “going down a flight of stairs”.

The HSI may find support at 21,098 – the previous low in November while the SSE may try to rally after touching 2,150. There will be technical rebounds but investors should look at whether the next rebound that comes along can have the conviction to break the downtrend line that has been suppressing the last few rebounds. Both indices look like there is still some room to fall in the medium-term before we can call for a rebound.


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