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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%
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All Eyes On Fed… Again!
Perspective | 17 June 2013
By: Ernest Lim
Articles (134) Profile

Asian markets continued their decline into their fifth week on continued concerns of central banks reduced appetite for more stimulus. Since 20 May to 13 June, more than US$1 trillion has been wiped off from the Asia Pacific benchmark equities with some indices such as Nikkei and Hang Seng China Enterprises entering into a bear market (i.e. >=20% fall from the recent high). (See Table 1 for the indices’ performance over the past two weeks)

Table 1: Indices’ Performance Over The Past Two Weeks

Source: Bloomberg; Ernest’s Compilations

Two weeks ago, I mentioned that a more meaningful support for the S&P 500 was at 1,600-1,609. S&P 500 broke the minor support 1,623-1,626 and fell to 1,598 before recovering to close at 1,627.

Relative to the Asian indices, S&P 500 has been more resilient. Although it has dropped three out of the four weeks, the drop has been small compared to the Asian indices. S&P 500 has only dropped about 60 points or 3.6% from the intraday high of 1,687 on 22 May. However, Hang Seng and STI have fallen by around 10.5% (2,454 points) and 8.8% (303 points) respectively for the same period.

S&P 500 is likely to range trade ahead of the FOMC meeting on 18-19 June. Support and resistance are at 1,598-1,609 and 1,650 respectively.

Chart 1: Likely To Range Trade Ahead Of FOMC Meeting On 18-19 June

Source: CIMB itrade Complimentary Chart (14 June 13)

Hang Seng index continued to weaken for the past two weeks to fall 6.4% to close at 20,969. It does not look pretty with the formation of death crosses. However, the low RSI of around 25.0 should cap any significant downside. (It has already rebounded from a low RSI of 22.5 on 13 June 13 which was the lowest level last seen in August 2011.) Near term supports are at 20,650 and 20,480 respectively. A more significant support would be the gap between 20,160 and 20,480 formed on 13 & 14 September 2012. Near term resistance is at 21,063-21,308.

Chart 2: Hang Seng Death Cross Forms 

Source: CIMB itrade Complimentary Chart (14 June 13)

For the STI, the supports of 3,299, 3,281 and 3,259 held temporarily before a wave of selling pushed it lower. As the STI fell to around 3,100 on 13 June, I had quickly drafted an email to my clients early afterrnoon to notify that the STI was severely oversold with limited near term downside. I had also compiled a list of stocks, subject to my personal criteria and sorted by RSI and total potential return to them. Readers who want my personal compilations (Source of data was from Bloomberg, 13 Jun) can drop me an email at crclk@yahoo.com.sg. Nevertheless, it is noteworthy that these compilations are for reference only.

Notwithstanding the above, STI has started to rebound from 13 June late afternoon and closed at 3,161 on 14 June. This was already a 67 points rise from the intraday low of 3,095 on 13 June. Significant resistance is expected around 3,200-3,231 where the 200D EMA, parabolic SAR and the gap reside. Support is at 3,134-3,137 and a more meaningful support could be found at 3,095-3,100.

Chart 3: STI Formed A Hammer On 13 June Which May Be A Tentative Sign Of Rebound

Source: CIMB itrade Complimentary Chart (14 June 13)

In a nutshell, despite the weakness in Asian indices’ charts, I personally think that the recent stock market rout presents interesting investment opportunities over the medium term. Although I am not an economist, my personal take is that it is unlikely that the Fed would taper the bond purchases in the June or even September meetings as the unemployment rate is still stubbornly high. Even when the Fed starts to taper off the bond purchases perhaps 4Q2013, actual rise in interest rate will be some time away. Notwithstanding the volatility and perhaps occasional pull backs, the main trend for the market is still up.

For those readers who have adhered to a 40-60% invested portfolio, this is arguably an opportune time to slowly raise it to 70% invested with a horizon of one year. For those with a lower risk profile, they can wait after the FOMC meeting to decide. Nevertheless, it is noteworthy that nobody has a Crystal Ball to tell them when the market is going to bottom or going to head in the next one month. What we can do, as investors, would be to make decisions (given the available information on hand) adjusted for probabilities, potential risks and payoffs.

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: 3,161.43

Support 1: 3,150

Support 2: 3,134-3,137

Support 3: 3,112

Support 4: 3,095-3,100

Resistance 1: 3,180

Resistance 2: 3,200-3,210

Resistance 3: 3,221-3,231

Resistance 4: 3,259

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

Summary Of Economic Calendar For The Week Ahead (SIN Time)
17 June, Monday: (CNY) **Foreign Direct Investment ytd/y; (ALL) G8 Meeting Day 1; (USD) Empire State Manufacturing Index;

18 June, Tuesday: (CNY) CB Leading Index m/m; (EUR) German ZEW Economic Sentiment; (GBP) Inflation Report Hearings / BOE Inflation Letter; (ALL) G8 Meeting Day 2; (USD) Building Permit / Housing Starts / Core CPI;

19 June, Wednesday: (GBP) MPC Meeting Minutes; (USD) Crude Oil Inventories / FOMC Statement / FOMC Press Conference;

20 June, Thursday: (CNY) HSBC Flash Manufacturing PMI; (EUR) French, Germany and Europe Flash Manufacturing & Services PMI / Spanish 10-y Bond Auction / Eurogroup Meetings; (GBP) Retail Sales; (USD) Unemployment Claims / Flash Manufacturing PMI / Existing Home Sales / Consumer Confidence / Philly Fed Manufacturing Index;

21 June, Friday: (JPY) BOJ Gov Kuroda Speaks; (EUR) ECOFIN Meetings;

*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.

**Foreign Direct Investment ytd/y is slated for release between 17-18 June.

àPlease refer to Forex Factory Calendar for a more detailed / up to date 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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