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As January Goes, So Goes The Market? Hope Not!
Perspective | 27 January 2014
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By: Ernest Lim
Articles (134) Profile

Asia markets dropped (Table 1) as data from China HSBC Flash Manufacturing PMI showed a surprise contraction which underscored the unevenness of China’s economy. The upcoming FOMC meeting this week and the plunge in the emerging markets’ currencies namely Argentina peso, Turkish lira and South African rand fuelled concerns on the vulnerability of the emerging markets (fund outflows from emerging markets), especially those with large account deficits.

Table 1: Indices’ performance over the past two weeks

Source: Bloomberg; Ernest’s compilations

Technical Analysis Of Indices’ Charts

S&P500 Index

Due to the above mentioned factors, coupled with the earnings results which have not in aggregate greatly surprised on the upside, S&P500 fell 2.6 percent this week, the largest decline since June 2012 and the second consecutive weekly loss.

Based on Chart 1, S&P500 broke a four-to-five week minor double top formation (1,819–1,849) which has a measured technical downside target of around 1,789. This was almost attained on 24 January 2014 in one large down move. S&P500 relative strength index (RSI) was around 36.8, which was the low seen on 24 August 2013 where there were also concerns on Fed tapering and the capital flight from vulnerable countries such as Malaysia ringgit, Indonesia rupiah and India rupee etc. Since 2013, there was only one period where the RSI fell below 36.8 which was mid August 2013 where it reached a low of 35.3. Since August 2011, there were only two periods where the RSI was lower than 35.3 namely (May to June 2012) and Nov 2012. These periods ranged approximately from one to three weeks.

In view of the above, the probability of a large near term fall in the next two weeks has become lower after the plunge last week. S&P500 is unlikely to go below 1,768 on a sustained basis in the next two weeks. Near term supports are tipped at 1,788-1,789 / 1,775 and 1,768–1,772. Resistances are at 1,800–1,810 and 1,819–1,820.

Chart 1: S&P500 broke a minor double top formation. Measured technical target: 1,789.

Source: CIMB itrade complimentary chart (24 Jan 14)

Hang Seng Index

As mentioned two weeks ago, Hang Seng has been on a downtrend since 2 December 2013. It continued its slide and closed a mere 4 points from my previously mentioned near term support of around 22,450 (Chart 2).

However, it is noteworthy that Hang Seng closed below its 200-day exponential average (EMA) of around 22,643, the first time since August 2013. The next few days would be important to observe whether Hang Seng can move above 200-day EMA, failing which, is a negative development. More ominously, the 21-day EMA is forming a death cross with 100-day EMA. (It has earlier formed a death cross with 50-day EMA on 6 January 2014.) Nevertheless, the validity of the death crosses is lower due to the range bound pattern of Hang Seng and low Average Directional Index.

Near term supports are 22,151–22,300 / 21,940 and 21,425–21,536. Resistances are at 22,643 / 22,723 / 22,954.

Chart 2: Hang Seng closed below its 200-day EMA, the first since August 2013.

Source: CIMB itrade complimentary chart (24 Jan 14)

With reference to Chart 3, STI broke the trading range 3,116–3,155. This pointed to a measured technical target of around 3,077 which was attained on 24 January 2014. STI’s RSI was around 34.9 which was not oversold yet.

Chart 3: STI broke the trading range 3,116 – 3,155. Measured technical target: 3,077.

Source: CIMB itrade complimentary chart (24 Jan 14)

Market Outlook

U.S. – As January goes, so goes the market

Most of you would have heard the market adage “As January goes, so goes the market”. According to Forbes research which compiled S&P500 data from 1950 through 2013, a negative performance in the first five trading days in January, coupled with a negative return for the entire month of January is likely to result in a negative return for the full year 73 percent of the time.

The first five trading days in 2014 yielded a negative return of 0.6 percent for the S&P500. S&P500 closed on 24 January 2014 with a month to date decline of around 3.1 percent. It will be interesting to see how S&P500 fares next week which will complete the month’s performance.

Besides economic data from China and an eye on the capital flight from the emerging markets, the market continues to look to U.S. corporate results to a certain extent. Apple reports results after market closes on Monday. Other companies which report results this week include Caterpillar, DuPont, Pfizer, AT&T, 3M, Google and Facebook.

Singapore – Sell off yields opportunities

Two weeks ago, I mentioned that I have reduced my equity allocation to 35 percent as I have sold some stocks which have risen. I have also mentioned that I was looking to raise my equity allocation as I am generally optimistic on this couple of months. I have since raised my allocation to around 90 percent as of 24 January 2014. Depending on market conditions, I am probably raising to 100 percent in the next two weeks as I believe some companies’ share prices are likely to move higher in the next two to six months.

Chart Analysis Of Specific Stocks

1. ISOTeam

ISOTeam’s share price has been pretty resilient and is near a five month high. Based on Chart 4, it seems to be a matter of time before ISOTeam breaches $0.400 decisively and head towards $0.440-0.450. Readers can refer to my writeup for more information on ISOTeam.

Chart 4: ISOTeam near five month high despite the general market sell off.

Source: CIMB itrade complimentary chart (24 Jan 14)

2. Sino Grandness

Based on Chart 5 below, it seems negative as Sino Grandness has breached the 3 month, multi times tested support of $0.715 and closed at $0.705 on 24 January 2014. This points to a measured technical target of around $0.650. However, there seems to be no indication of massive and rapid selling after it broke $0.715. The selling seems controlled with buyers stacking up. Near term supports and resistances are $0.705 / $0.695 / $0.675 and $0.715 / $0.725 / $0.735.

Potential catalysts include 4Q13 results to be announced last week of Feb; potential roadshows in end-February or/and March and their annual March business trade fair where new products may be launched. Naturally, the progress on their Garden Fresh initial public offering will be closely tracked too.

Chart 5: Sino Grandness tests the bottom of the 3 month trading range

Source: CIMB itrade complimentary chart (24 Jan 14)

3. Hankore

With reference to Chart 6, Hankore seems to be holding up pretty well today despite the broad market weakness. However, it seems to be in a descending triangle formation (typically a bit bearish). It faces resistance $0.115-0.117. Support is at $0.112 / 0.110 / 0.107-0.108. On 20 January, it dropped -$0.005 on total volume of 194 million to close at $0.110. However, it promptly rose +$0.007 the next day to close $0.117 on 297 million volume. All in, I would think chart is overall neutral. It would be good if it can clear $0.117 on high volumes but bearish if it drops below $0.107-0.108 on high volumes.

Chart 6: Hankore – overall neutral. UOB Kayhian initiated target $0.137 on 24 January 2014.

Source: CIMB itrade complimentary chart (24 Jan 14)

4. Venture

Based on Chart 7, Venture closed at $7.68 on 24 January which was very near to its four month low. This stock generally has a pattern of moving higher in anticipation of its FY13 dividends. Supports and resistances are at $7.44–7.45 / 7.37–7.40 / 7.31 and $7.53–7.54 / 7.62 / 7.65 respectively.

Chart 7: Venture generally moves higher in anticipation of its FY13 dividends.

Source: CIMB itrade complimentary chart (24 Jan 14)

*Please note that most of the above mentioned stocks are small cap stocks and are likely to be more volatile than blue chips. In other words, they may drop more than the market if market weakens.

STI Supports And Resistances:

Current: 3,076

Support 1: 3,064 – 3,066

Support 2: 3,057

Support 3: 3,035

Support 4: 3,025

Resistance 1: 3,088 – 3,091

Resistance 2: 3,099 – 3,102

Resistance 3: 3,106 – 3,107

Resistance 4: 3,116

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

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

27 Jan, Mon: (EUR) German IFO Business Climate / Eurogroup Meetings; (USD) New Home Sales;

28 Jan, Tues: (GBP) Prelim GDP q/q; (EUR) ECOFIN Meetings; (USD) Core Durable Goods Orders m/m / S&P/CS Composite-20 HPI y/y / CB Consumer Confidence / Richmond Manufacturing Index;

29 Jan, Wed: (USD) FOMC Statement;

30 Jan, Thurs: (CNY) HSBC Final Manufacturing PMI; (USD) Advance GDP q/q / Unemployment Claims / Pending Home Sales m/m;

31 Jan, Fri: (EUR) German Retail Sales m/m; (USD) Personal Income & Spending m/m / Chicago PMI / Revised UoM Consumer Sentiment;

1 Feb, Sat: (CNY) Manufacturing PMI

*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!

Have a prosperous Chinese New Year ahead!

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.

ISOTeam  0.230 -- --   
Business: Engaged in the building maintenance & estate upgrading industry. [FY18 Turnover] Addition & alteration works (43.2%), Repairs & redecoration works (23.6%), others (21.4%), coating & painting (11.8%).

Insight: May-19, 9M19 revenue rose 62.8% with significantly... Read More
Sino Grandness Food Industry Group  0.045 -- --   
Business: Integrated manufacturer & distributor of own-branded Garden Fresh juices as well as canned fruits & vegetables. [FY17 Turnover] Beverage (72.4%), canned pdts (27.6%).

Insight: Aug-18, 1H18 revenue jumped 10.6% to Rmb1.7b mainl... Read More
Venture Corp  15.920 +0.35 +2.25%   
Business: Co provides technology services, products and solutions. [FY18 Turnover] Advance Manufacturing & Design Solutions (AMDS) [74.6%], technology products & design solutions (TPS) [25.4%].

Insight: Apr-19, 1Q19 revenue rose 8.5% to $928.8m due to b... Read More

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