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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 Weakness Yields Opportunities
Perspective | 11 March 2014
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By: Ernest Lim
Articles (134) Profile

For the past two weeks, despite the Ukraine crisis, most Asia markets continued to move higher on the back of better than expected US economic data such as hiring and manufacturing and the resilient US equity markets (see Table 1).

Table 1: Indices’ Performance Over The Past Two Weeks

Source: Bloomberg; Ernest’s compilations

Technical Analysis

S&P500 Index
S&P500 closed at a record high 1,878 (see Chart 1). RSI (relative strength index) is currently at 66.4. It is not high but seems to be facing significant resistance at 70–75. In the next two weeks, based on chart, momentum does not seem strong enough to break 1,900/1,925. Near term supports are at 1,850–1,839. Resistances are at 1,884 and 1,900.

Chart 1: S&P500 Closed At A Record High

Source: CIMB itrade complimentary chart (7 March 14)

Hang Seng Index
With reference to Chart 2, Hang Seng closed just below the downward trendline C (currently at 22,660). ADX (average directional index) continues to be low at 12.4. Against the backdrop of a low ADX, coupled with the RSI facing its own resistance, Hang Seng may not have the momentum to stage a new uptrend in the next two weeks.

Near term supports are at 22,505–22,582 and 22,315–22,350. Near term resistances are at 22,830 and 23,100-23,140.

Chart 2: Hang Seng Closed Just Below The Downward Trendline C

Source: CIMB itrade complimentary chart (7 March 14)

Straits Times Index
Based on Chart 3, STI faces significant resistance at 3,140–3,142 which is the 200-day EMA (exponential moving average and downward trendline since September 2013. ADX remains low at 17.0 (though it is slowing rising). Barring unforeseen circumstances, it is unlikely to exceed 3,188 in the next two weeks.

Chart 3: STI Continued Its Upward Move Despite Ukrainian Concerns

Source: CIMB itrade complimentary chart (7 March 14)

Market Outlook

US – Quiet Week In Terms Of Economic Data And Results
This is a quiet week for the US market in terms of economic data and corporate results. Thus, market may look to technicals, or other regional events (such as Bank of Japan’s Monetary Policy on Tuesday; China’s Premier Li’s Press Conference on Thursday; ongoing Russian Ukraine problems etc).

Singapore – Opportunities Abound
Two weeks ago, I mentioned that I was about 95 percent invested and intended to lighten my portfolio. For the past two weeks, I have taken profit and reduced my equity allocation to around 20 percent. Personally, I am still bullish in the market and will raise my equity allocation on selected stocks with near term catalysts.

I want to point out for companies with their financial year end in December, their yearly financial statements will be audited by around March to April so that they can print their annual reports. This period is arguably the most frequent time where auditors may raise red flags on the companies’ financial reports. This is just a reminder to those clients who purchase speculative stocks.

Follow Up On Stocks

Asian Pay TV
Two weeks ago, I mentioned that Asian Pay TV seems to be forming an inverse head and shoulder pattern (see Chart 4). The inverse head and shoulder pattern was confirmed on 25 February when the neckline around $0.790-0.800 was breached with volume expansion. It touched a high of $0.845 on 5 March which is very near to my measured technical target of around $0.855. Subsequently, it weakened on profit taking to a low of $0.800 on 7 March.

Chart 4: Reached $0.845 – Near My Target Of $0.855, Before Weakening On Profit Taking

Source: CIMB itrade complimentary chart (7 March 14)

*Please note that I am putting my equity allocation above just for discussion purpose. Everybody is different in terms of returns expectations, risk profile, portfolio size, commitments, market outlook, stock preference etc. As such, everybody’s allocation in equities differs.

*In addition, it is noteworthy 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 Near Term Supports And Resistances

Current: 3,136

Support 1: 3,115–3,116

Support 2: 3,098–3,102

Support 3: 3,092–3,093

Support 4: 3,084

Resistance 1: 3,140–3,142

Resistance 2: 3,150

Resistance 3: 3,155

Resistance 4: 3,163

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

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

10 Mar, Mon: (JPY) Final GDP; (EUR) Eurogroup Meetings; (USD) FOMC Member Plosser Speaks;

11 Mar, Tues: (JPY) Monetary Policy Statement / BOJ Press Conference; (CNY) **M2 Money Supply y/y / **New Loans; (GBP) Manufacturing Production m/m; (EUR) ECOFIN Meetings;

13 Mar, Thurs: (CNY) Industrial Production y/y / Fixed Asset Investment ytd/y / Retail Sales; (USD) Core Retail Sales m/m / Retail Sales / Unemployment Claims;

14 Mar, Fri: (USD) PPI m/m / Core PPI m/m / 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.

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

**New Home Loans and Money Supply are tentatively scheduled between 11-14 Mar.

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.

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