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Straits Times 3,114.16 -11.98 -0.38%
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Markets – Likely To Be Range Bound With A Downward Bias
Perspective | 01 July 2013
By: Ernest Lim
Articles (134) Profile

Most Asian markets continued to slide in tandem with the weakness in the bond, commodities and precious metals markets. This is amid continued concerns of central banks’ reduced appetite for more stimulus, weakness in China’s economy and its shadow banking sector. (See Table 1 for the indices’ performance over the past two weeks)

Source: Bloomberg; Ernest’s compilations

Table 1: Indices’ Performance Over The Past Two Weeks

Two weeks ago, I mentioned that S&P 500 is likely to range trade ahead of the FOMC meeting on 18 to 19 June. It indeed stayed within the range of 1,598 to 1,650. However, after the FOMC meeting, the market was unnerved by Mr Ben Bernanke’s comments and S&P 500 slid to a two-month low on an intraday basis to 1,560 before closing at 1,606 on 28 June. Based on the chart below (Chart 1), S&P 500 broke below the uptrend line established since late November 2012 and traded below its 21D exponential moving average (EMA). It is currently at its 50D EMA. This is (a tad) bearish development. It is likely to remain range bound with a downward bias. Near-term supports are 1,580, 1,560 and 1,520 to 1,530. Resistances are at 1,616, 1,630 & 1,650 to 1,655. The (tad) bearish feature of the chart would be invalidated if S&P 500 can close solidly above 1,616 for three consecutive days.

Chart 1: S&P 500 – Tad Bearish, Breaks The Uptrend Line Since Late November 2012

Source: CIMB itrade complimentary chart (28 June 2013)

Hang Seng Indes (HSI) weakened considerably for the past two weeks but managed to stage a rebound after touching the lower channel support on 25 June (Chart 2). It seems to have breached above the upper channel resistance on 28 June but we would first need to observe the chart development around this upper channel resistance. It is arguably premature to say that a new uptrend has formed, especially with the formation of death crosses. Near-term support would be located around the declining upper trend channel resistance and 20,386. Near-term resistance would be around 21,063.

Chart 2: HSI – Remains To Be Seen Whether The Rebound Is Sustainable

Source: CIMB itrade complimentary chart (28 June 2013)

For the Straits Time Index (STI), in line with the other Asian bourses, it weakened to around 3,065 and consolidated around that level. At 3,065, it has almost given up 76.4 percent of its gains from the rally from 2,934 on 16 November 2012 to 3,465 on 22 May 2013. Subsequently, the STI rebounded from around 3,065 on 25 June to close at 3,150 on 28 June.

Although I have informed you early this week that the downside is likely to be limited, it is premature to proclaim that the rebound which we have seen last week is a new uptrend. Personally, there is a cluster of important and significant resistances (i.e. 3,200 to 3,204; 3,218 & 3,262) to be cleared before the chart is a tad positive. Near-term support is at 3,134 to 3,137 and a more meaningful support could be found at 3,059 to 3,064.

Chart 3: STI – Too Early To Proclaim A Rebound

Source: CIMB itrade complimentary chart (28 June 2013)

After the sharp and rapid drop in the equities, bonds, commodity and precious metals markets since 22 May, it is unlikely that the “bearish” sentiment can be that rapidly reversed into a new bull market. In other words, I would think that the markets are likely to be range bound ahead of the US 2Q13 corporate results and the jobs report on 5 July with a downward bias.

For those readers who have adhered to a 40 to 60 percent invested portfolio, I would reiterate that this would be a good time to slowly raise it to 70 percent to 80 percent invested with a horizon of one year. Notwithstanding the volatility and perhaps occasional pull backs, the main trend for the market is still up. 

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: 3,150.44

Support 1: 3,134 – 3,137

Support 2: 3,118 – 3,120

Support 3: 3,090 – 3,095

Support 4: 3,084

Resistance 1: 3,160

Resistance 2: 3,185

Resistance 3: 3,200 – 3,204

Resistance 4: 3,218

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

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

1 Jul, Mon: (JPY) Tankan Manufacturing & Non Manufacturing Index; (CNY) Manufacturing PMI / HSBC Final Manufacturing PMI; (EUR) Spanish, Italian & Europe Manufacturing PMI; (GBP) Manufacturing PMI; (USD) Final Manufacturing PMI / ISM Manufacturing PMI / Construction Spending;

2 Jul, Tues: (GBP) Construction PMI; (USD) Factory Orders m/m / FOMC Member Dudley & FOMC Member Powell Speak;

3 Jul, Wed: (CNY) Non-Manufacturing PMI; (EUR) Spanish, Italian & Europe Services PMI; (GBP) Services PMI; (USD) ADP Non-Farm Employment Change / Unemployment Claims / ISM Non-Manufacturing PMI / Crude Oil Inventories;

4 Jul, Thurs: (JPY) BOJ Gov Kuroda Speaks; (EUR) Final GDP q/q / French 10-y Bond Auction / ECB Press Conference; (GBP) MPC Rate Statement;

5 Jul, Fri: (EUR) German Factory Orders m/m; (USD) Non-Farm Employment Change / Unemployment Rate.

*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 / 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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