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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%
Market Outlook: US Indices Weaken, Volatility Increases And Caution Sets In
Corporate Digest | 23 April 2013
By: Ernest Lim
Articles (134) Profile

Table 1 shows the indices performance over the past two weeks. If we just base on the percentage change over the past two weeks, it would have seemed everything is quiet and peaceful. However, if we delve deeper, US markets actually suffered the worst one day and weekly drop since November. Gold tumbled approximately 13 percent from 11 April to 16 April, the largest two day decline since 1980. Apple closed at US$390.53, which was the low last seen in December 2011.

Source: Bloomberg; Ernest’s compilations

Against the backdrop of mixed US corporate results, economic data, increasing volatility in the markets, Boston bombing, sharp selloff in the commodities and precious metals markets, weak China data, ongoing bird flu in China and North South Korea tensions, S&P 500 is not able to escape unscathed. It has dropped below the 21D EMA and seems to be teetering on the 50 day EMA which is around 1,542 as of last Friday. Near term supports are at 1,537 to 1,542 and 1,526 to 1,531. A more meaningful support is around 1,500 to 1,509. Near term resistance is at the 21 day EMA of around 1,560. (See Chart 1 below)

Chart 1: S&P500 Teetering On 50D EMA Around 1,542 Now

Source: CIMB itrade complimentary chart (19 April 2013)

A key driver for the near term share price performance of the US indices will hinge on US corporate results this coming week as a third of S&P companies and Dow components would be reporting results. Examples are Apple, Boeing, Caterpillar, Chevron, Dupont, Exxon Mobil, and United Technologies etc.

For the Hang Seng Index (HSI) chart, it continues to be bearish and entrenched in a downwards sloping channel. Notwithstanding the large 501 point move on last Friday, it is still entrenched in a downward channel since February. Near term supports can be seen at 21,807, 21,535, 21,335 but a more significant support is at 20,900 to 21,063. Formidable resistance is at 22,048 to 22,366.

Chart 2: HSI Entrenches In A Downwards Sloping Channel

Source: CIMB itrade complimentary chart (19 April 2013)

For the Straits Times Index (STI), it continues to be range bound between 3,235 to 3,331 with an ADX reading of 12. The three tops attained on 4 February, 12 March and 3 April coincided with bearish divergences on the RSI, MACD and MFI. Furthermore, the weakening technical outlook on the US indices (increasing volatility), coupled with weak HSI and China indices and sharp sell off in commodities, increases the odds for a downward breakdown on the STI trading range to more than 50 percent. A bearish break below 3,235 points to a measured technical target of 3,139 to 3,150.

Chart 3: STI Still Consolidating But Odds For A Bearish Breakdown Have Increased

Source: CIMB itrade complimentary chart (19 April 2013)

Updates On Kreuz And Dukang

Kreuz Reaches My Technical Target Price Of $0.545

With reference to my writeup dated 1 April on my blog (reproduced on Sharesinv on 2 April http://www.sharesinv.com/articles/2013/04/02/kreuz-holdings-good-results-strong-chart-low-valuations/). Kreuz has reached my technical target price of $0.545 (based on charts) and have started to consolidate around the region of 0.505 to 0.540. (See Chart 4 below)

Chart 4: Kreuz Reached My Technical Target Price Of $0.545 And Retreated

Source: CIMB itrade complimentary chart (19 April 2013)

Dukang Reaches My Technical Target Price Of $0.40

I have posted a writeup on Dukang on 16 April, Tues morning on my blog and it was reproduced on Shares Investment on 17 April, Wednesday (http://www.sharesinv.com/articles/2013/04/17/dukang-distillers-%E2%80%93-price-range-bound-since-november-2012/). It has since reached my technical target price of around $0.400 (based on chart) by appreciating 22 percent from $0.335 on 16 April to $0.410 on 19 April. (It went up to an intraday high of $0.425 last Friday) Based on the chart, it is getting overbought (RSI:81.4). Share price has increased 2.4 percent on Monday due to the positive close in US market on last Friday but may start to consolidate / profit take in the near term.

Chart 5: Dukang Already Reached My Technical Target Price Of $0.40

Source: CIMB itrade complimentary chart (19 April 2013)

In A Nutshell… Getting Bearish On The General Market But Look To Accumulate Certain Stocks On Weakness

In a nutshell, I am getting bearish on the general market and believe that the odds of a bearish breakdown in STI have increased. Given the current market environment, I would be paring down my portfolio to around 50 to 60 percent invested in equities with the balance in liquid cash so as to accumulate certain stocks with near term catalysts on weakness.

Do note that the percentage invested in stocks is subjective, thus you should align your percentage invested to your risk profile, horizon, cash requirements and personal outlook on the market etc. 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: 3,294.05

Support 1: 3,275 – 3,279

Support 2: 3,259 – 3,264

Support 3: 3,248

Support 4: 3,228 – 3,235

Support 5: 3,220 – 3,222

Resistance 1: 3,300 – 3,302

Resistance 2: 3,315

Resistance 3: 3,321

Resistance 4: 3,331-3,335

Resistance 5: 3,348

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

*Summary Of Economic Calendar For The Week Ahead (SIN time)

22 Apr, Mon: (EUR) Consumer Confidence; (USD) Existing Home Sales;

23 Apr, Tues: (CNY) HSBC Flash Manufacturing PMI; (EUR) French, Germany & Europe Flash Manufacturing & Services PMI / Italian Retail Sales m/m; (USD) Flash Manufacturing PMI / New Home Sales / Richmond Manufacturing Index;

24 Apr, Wed: (EUR) German Ifo Business Climate / Italian 10-y Bond Auction; (USD) Core Durable Goods Orders / Durable Goods Orders / Crude Oil Inventories;

25 Apr, Thurs: (EUR) Spanish Unemployment Rate; (GBP) Prelim GDP q/q; (USD) Unemployment Claims;

26 Apr, Fri: (JPY) Manufacturing PMI / Monetary Policy Statement / BOJ Press Conference; (USD) Advance GDP q/q / 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.

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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