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Corporate Results – Key For Near Term Market Direction
Perspective | 21 April 2014
By: Ernest Lim
Articles (134) Profile

Since 4 April, Asian ex Japan stocks rose on mostly better than expected U.S. data & U.S. corporate earnings. Speculation on potential stimulus from the China government continued for the past two weeks amid weak China economic data. (See Table 1 below)

Table 1: Indices’ performance over the past two weeks

Technical Analysis Of Indices’ Charts

1. S&P500 Index

Two weeks ago, I mentioned that the price action on 4 April may mark a potential reversal day (i.e. bearish).

The next few days saw follow through selling, which pushed S&P500 all the way down to a low of 1,816 on 11 April, just below the uptrend line established since mid Nov 2012. However, the index quickly went back above the trendline in the next two days. (See Chart 1 below).

Based on the chart, it is encouraging to see that S&P500 regained the uptrend line that quickly. With the low ADX reading of 13.2, it is likely to be in a range probably between 1,800 – 1,925.

There is no compelling chart development to indicate whether there’s a convincing buy or sell, but my gut feel is that the possibility of an upmove slightly outweighs the downside.

Near term supports are at 1,855 / 1,848 / 1,837 – 1,840 / 1,818 – 1,823. Resistances are at 1,872 / 1,885 / 1,897 – 1,900 / 1,925.

Chart 1: S&P500 regained the uptrend line within 2 trading days

Source: CIMB itrade complimentary chart (17 Apr 14)

Hang Seng Index
Two weeks ago (4 Apr), I wrote that Hang Seng’s chart looks positive after breaching the downward trend line C. I mentioned that it would be good if Hang Seng can consolidate around 22,130 – 22,440 before staging the next upmove.

Since 4 April, Hang Seng touched an intraday low of 22,326 on 7 April and bounced higher to touch an intraday high of 23,225 on 10 April before closing at 22,760 on 18 April.

Based on Chart 2 below, it is not unexpected that Hang Seng did not see much follow through buying after breaching 23,000 on 10 April as its RSI shot to 69 which was the highest seen in the past 6.5 months.

RSI has since weakened to around 57. The chart’s development continues to look positive but it will be good if we can see Hang Seng consolidate around 22,315 – 22,520 before staging the next upmove.

Near term supports and resistances are at 22,659 / 22,315 – 22,520 and 23,200 / 23,428 respectively.

Chart 2: Hang Seng breached 23,000 without follow through buying and weakened

Source: CIMB itrade complimentary chart (17 Apr 14)

Straits Times Index
Two weeks ago (4 Apr), I mentioned that STI may see some profit taking after successfully broken out of its downtrend since Sep 2013 which was a bullish development.

STI subsequently weakened to a low of 3,182 before moving higher to an intraday high of 3,259 (at my previously mentioned resistance level 3,260). It subsequently closed at 3,254 on last Friday.

The recent upmove was attributed mainly to property stocks which bolted higher amid a privatisation wave. Although the chart’s development is positive, I am cautious on STI as it moves into the overbought region. (RSI on last Fri close was around 72 which was almost an 11 month high.)

See STI supports and resistances below.

Chart 3: STI chart development positive but cautious on near term

Source: CIMB itrade complimentary chart (17 Apr 14)

U.S. Market outlook – Approx 1/3 of S&P500 companies to report results next week
U.S. corporate results released last week were mostly better than expected due to lowered expectations. According to Thomson Reuters, analysts currently estimate that 1Q earnings to rise 1.7 percent y/y.

This estimate was already revised lower from the 6.5 percent increase y/y at the start of the year, but slightly higher than the 0.6 percent increase y/y on 16 April, Wednesday.

The usual themes are likely to continue for the next two weeks, namely, a) rotation from riskier stocks to more defensive stocks; b) China’s economy and potential policy measures and the impact on China slowdown on U.S. corporate results & c) corporate results from those momentum stocks

About a third of S&P500 companies will be reporting results. The market is likely to pay emphasis to Apple, Microsoft, McDonald’s, Yums!, Qualcomm, Facebook, Netflix, Gilead Sciences Inc, Biogen Idec Inc and Illumina Inc (just to name a few).

Singapore Market outlook – buying on dips on selected stocks
Despite the strong STI performance recently, there is not much buying interest in the 2nd & 3rd liner stocks. Although my feel is that STI may see some profit taking in the near term, there are some stocks which are worth to take a look.

For the past two weeks, I have raised my equity allocation from 50-60 percent to around 90 percent. (Clients have and will be notified of certain stocks to take a look)

Please note that I am putting my equity allocation and selected stocks 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 are:

Current: 3,254

Support 1: 3,235

Support 2: 3,219

Support 3: 3,210

Support 4: 3,182 – 3,191

Resistance 1: 3,260

Resistance 2: 3,270

Resistance 3: 3,280

Resistance 4: 3,300 – 3,305

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

*Summary of Economic Calendar for the Week ahead (SIN time)

22 Apr, Tues: (USD) Existing Home Sales / Richmond Manufacturing Index;

23 Apr, Wed: (CNY) HSBC Flash Manufacturing PMI; (EUR) French, Germany & Europe Flash Manufacturing & Services PMI; (USD) Flash Manufacturing PMI / New Home Sales;

24 Apr, Thurs: (EUR) German Ifo Business Climate / ECB President Draghi Speaks; (USD) Core Durable Goods Orders m/m / Unemployment Claims / Durable Goods Orders m/m;

25 Apr, Fri: (GBP) Retail Sales m/m; (USD) Flash Services PMI / Revised 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.

All the best for your investment and trading!

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

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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