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Markets Likely Range-Bound But Opportunities Exist For The Nimble
Perspective | 12 August 2013
Related stocks:
N4E
RQ1
By: Ernest Lim
Articles (134) Profile

Asian stocks excluding China mainly fell as the yen gained and corporates such as HSBC Holdings and Nikon Corporation posted disappointing results. The Chinese market gained as recent economic data, such as industrial production, trade data, service and manufacturing PMI soothed market of fears of a hard landing. (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 wrote that S&P500 at 1,692 was not in an overbought region yet. It indeed closed at a high of 1,710 on 2 August before retreating to 1,691 on 9 August. Based on Chart 1 below, there is some (mild) bearish divergence exhibited by the indicators like MACD (moving average convergence/divergence), MFI (money flow index) versus the share price. Against the backdrop of a low ADX (average directional index) reading of 19.5, it is likely that market may be range-bound between 1,662 (rising trend line) and 1,710 with a slight downward bias. Near-term support and resistance are at around 1,686 and 1,700 respectively.

Chart 1: S&P500 Likely To Trade Between 1,662 And 1,710

Source: CIMB itrade Complimentary Chart (9 Aug 13)

Two weeks ago, I mentioned that with the falling ADX, the Hang Seng Index was likely to consolidate around 21,535 to 22,290 in the near-term. Hang Seng indeed reached an intraday high of 22,291 on 2 August before dipping to an intraday low of 21,571 on 7 August. It closed at 21,808 on last Friday. Against the backdrop of a declining ADX, Hang Seng is likely to range trade between 21,063 and 22,580. Near-term significant support and resistance are at around 21,500 and 22,290 respectively.

Chart 2: Hang Seng Likely To Trade Between 21,063 And 22,580

Source: CIMB itrade Complimentary chart (9 Aug 13)

Two weeks ago, I wrote that the Straits Times Index was likely to consolidate around 3,185 to 3,300 amid the low ADX of around 17.8. ADX continued to drop to around 14.7 on last Friday. It is likely that the STI continues to trade range-bound around 3,160 to 3,300. Near-term significant support and resistance are around 3,200 to 3,218 and 3,276 to 3,281 respectively.

Chart 3: STI Likely To Trade Around 3,160 To 3,300

Source: CIMB itrade Complimentary Chart (7 Aug 13)

Although the markets are likely to trade range-bound, there may be trading opportunities in selective stocks which are going to release results. (Clients have been and will be notified of such stocks to take a look.)

Technical Update: Two Companies To Highlight

1. Nam Cheong

Nam Cheong reports results on 12 August, after market closes. In the latest update from DMG & Partners dated 6 August, they expect Nam Cheong to post a strong 2Q13 results which should provide the catalyst for a potential upwards move in the share price.

Based on Chart 4, it is still trading within a seven-month range from $0.24 to $0.29. It has successfully used $0.28 as a resistance turned support area and now seems to be going to test $0.29. If it breaches $0.29 with volume expansion, an eventual technical measured target price is around $0.34. On the fundamental side, average analyst target price is around $0.35.

Chart 4: Still In A Seven-Month Consolidation Range $0.24 To $0.29

Source: CIMB itrade Complimentary Chart (7 Aug 13)

Readers can refer to my writeup on Nam Cheon: http://www.sharesinv.com/articles/2013/07/22/nam-cheong-%E2%80%93-likely-beneficiary-of-malaysia%E2%80%99s-oil-and-gas-capex-plans/.

2. Overseas Education 

Two weeks ago, I mentioned that Overseas Education has broken up from a four-month range of $0.675 to $0.75 with an eventual measured technical target of $0.82. It reached an intraday high of $0.83 on 30 July, Tuesday before dropping to $0.76 on 31 July. I have first highlighted this potential bullish chart setup on 22 July, Monday where it was trading between $0.71 and $0.72.

Chart 5: Reached My Eventual Measured Technical Target Of $0.82 On 30 July

Source: CIMB itrade Complimentary Chart (7 Aug 13)

It is noteworthy that the above mentioned stocks are small to mid cap stocks and they are likely to experience a higher volatility than the blue chips. In other words, they may drop more than the market if market weakens.

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: 3,229.91

Support 1: 3,218

Support 2: 3,200 to3,205

Support 3: 3,185 to 3,188

Support 4: 3,160

Resistance 1: 3,239

Resistance 2: 3,259 to 3,266

Resistance 3: 3,276 to 3,281

Resistance 4: 3,300 to 3,304

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

Summary Of Economic Calendar For The Week Ahead (Singapore Time)

12 August, Monday: (JPY) Prelim GDP q/q;

13 August, Tuesday: (JPY) Monetary Policy Meeting Minutes / Core Machinery Orders m/m; (EUR) German ZEW Economic Sentiment; (USD) Core Retail Sales / Retail Sales;

14 August, Wednesday: (GBP) MPC Asset Purchase Facility Votes; (EUR) French & Germany Prelim GDP q/q / Europe Flash GDP q/q; (USD) Crude Oil Inventories / FOMC Member Bullard Speaks;

15 August, Thursday: (GBP) Retail Sales m/m; (USD) Core CPI m/m / Unemployment Claims / Empire State Manufacturing Index / Industrial Production m/m / Philly Fed Manufacturing Index / NAHB Housing Market Index;

16 August, Friday: (EUR) Core CPI y/y / Trade Balance; (USD) Building Permits / Housing Starts / Prelim 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 / up to date list of economic events.

Information sources: Various sources such as Bloomberg, Daily FX, Dow Jones, Forex calendar, Zacks Investment Research, Reuters, SGX, Yahoo Finance, and Business Times etc.

All the best for your investment and trading!

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.

Nam Cheong  0.008 -- --   
Business: An offshore marine group specialising in the building of offshore support vessels. [FY18 Turnover] Shipbuilding (59.2%), vessel chartering (40.8%).

Insight: Feb-19, FY18 revenue rose 3.2% due to increased re... Read More
Overseas Education  0.325 -- --   
Business: Co operates a private foreign system school in Singapore. [FY18 Turnover] Tuition (96.7%), registration (1.4%), school shop (0.7%), enrichment programme (0.7%), interest & other (0.5%).

Insight: Feb-19, FY18 revenue dipped 4.3% due to weaker stu... Read More


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