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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%
Selective Plays May Outshine The Broad Markets
Perspective | 03 June 2014
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By: Ernest Lim
Articles (134) Profile

Based on Table 1 below, Asian indices rallied amid a slew of positive developments. Expectations on stimulus from central banks in Japan and Europe and on the possible pick up in U.S. economic activity in 2Q buoyed market sentiment.

Easing tensions between Russia & Ukraine and generally good corporate results also contributed to the bullish sentiment.

Table 1: Indices’ performance over the past two weeks

Technical Analysis Of Indices’ Charts

S&P500 Index

As mentioned two weeks ago, S&P500’s trend remained up and was likely to remain in a trading range 1,837 – 1,925 given its low ADX. S&P500 closed at 1,924, a new record. (See Chart 1 below).

S&P500 mostly traded within a range of 1,831 – 1,891 from 14 Feb 2014 to 23 May 14. The breakout from the trading range 1,831 – 1,891 on 23 May points to a measured technical target of around 1,951.

RSI as of last Friday close was 65.7. It is not overbought yet but near to the 70 level – generally viewed as overbought.

Near term supports are at 1,912 / 1,898 – 1,902 / 1,889 – 1,893. Resistances are at 1,925 / 1,950 / 1,975.

Chart 1: S&P500 closed at record high

Source: CIMB itrade complimentary chart (30 May 14)

Hang Seng Index
Two weeks ago, I wrote that Hang Seng was likely to trade within the range of 21,661 – 23,469, given the low ADX. For the past two weeks, it traded within the aforementioned range and closed at 23,082.

However, looking ahead in the next 2-4 weeks, there is a more than 50 percent possibility that Hang Seng may breach its prior high of 23,225 on 10 April 2014 amid the strengthening ADX (ADX closed at 23.7 on last Friday) and golden crosses formed by the exponential moving averages. (See Chart 2 below)

Near term supports and resistances are at 23,003 / 22,862 – 22,884 / 22,732 and 23,225 / 23,428 – 23,469 / 23,555 respectively.

Chart 2: Hang Seng may breach its prior high of 23,225

Source: CIMB itrade complimentary chart (30 May 14)

Straits Times Index
Two weeks ago, I mentioned that STI seemed to be trading within the levels of 3,222 – 3,285 since 15 April. Measured technical targets should it break on the downside and upside were 3,159 and 3,348 respectively.

STI breached 3,285 on 29 May and reached an intraday high of 3,309 before closing at 3,296 on last Friday. (See Chart 3 below)

RSI as of last Friday’s close was 63.0. This is not overbought yet. ADX seems to be reversing its decline and slowly moving higher. It closed at 20.0 last Friday.

The trend remains up and odds (say slightly more than 50 percent) are likely of reaching the eventual upside measured technical target of 3,348. (i.e. potential appreciation is approximately 1.6 percent)

See STI supports and resistances below.

Chart 3: STI broke out of the 1.5 month trading range 3,222 – 3,285

Source: CIMB itrade complimentary chart (16 May 14)

U.S. Market Outlook – Reached 1,924 : How High Can It Go?
S&P500 has almost reached my end June target of 1,925. Based on the charts, it seems like it may continue to move higher to perhaps 1,950 – 1,975. This represents an approximate 1.4 – 2.7 percent in the near term which in my opinion, is rather limited.

Although S&P500 may move higher than 1,975 or 2,000 in the longer term, I would be cautious in the near term. (See my previous writeup for more information on the reasons to be cautious)

Singapore Market Outlook – Selective Stocks Have Outperformed STI
STI has appreciated one percent over the past two weeks. However, stocks such as HanKore and Gallant have outperformed with gains of 24 percent and 12 percent respectively over the same period.

Over the past two weeks, I have used leverage to increase my equity allocation in selective stocks to approximately 130 percent before paring to 100 percent at the close of the week.

Stocks such as Gallant may be worth a look as company is embarking on a series of investor roadshows in U.S, Japan, KL & Singapore in June and July.

Please see my May 2014 article on Gallant where it was trading at $0.300. Subsequent to my writeup, DMG and Daiwa also followed up with unrated reports. It closed -0.005 to $0.335 last Friday.

Based on Gallant’s chart developments, the stock is likely to breach $0.35-0.360 in the next 1-6 months time. However, it is noteworthy that as of last Friday’s close, RSI was at 62.7 i.e. it is not overbought yet but it is not at a low level either.

I reiterate that being 100 percent invested in stocks, especially small and mid cap stocks is not appropriate for all clients.

In addition, I am cautious on the general markets (STI, S&P500) as they lack catalysts for a substantial upmove in the near term (appreciation may be capped in the region of 1-3 percent in the short term.)

Please note that I am putting my equity allocation and selected stocks above just for discussion purpose.

Due to my work nature, I can change my equity allocation and the stocks quickly. 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: 3,296

Support 1: 3,265 – 3,270

Support 2: 3,250 – 3,252

Support 3: 3,228 – 3,231

Support 4: 3,209

Resistance 1: 3,310

Resistance 2: 3,320

Resistance 3: 3,337

Resistance 4: 3,345 – 3,350

*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 Jun, Sun: (CNY) Manufacturing PMI;

2 Jun, Mon: (GBP) Manufacturing PMI; (USD) ISM Manufacturing PMI / Construction Spending m/m;

3 Jun, Tues: (CNY) Non Manufacturing PMI / HSBC Final Manufacturing PMI; (GBP) Construction PMI; (EUR) CPI Flash Estimate y/y; (USD) Factory Orders m/m;

4 Jun, Wed: (GBP) Services PMI; (EUR) Revised GDP q/q; (ALL) G7 Meetings Day 1; (USD) ADP Non-Farm Employment Change / Trade Balance / ISM Non-Manufacturing PMI / Beige Book;

5 Jun, Thurs: (CNY) HSBC Services PMI; (ALL) G7 Meetings Day 2; (GBP) BOE Meets; (EUR) ECB Meets / ECB Press Conference; (USD) Unemployment Claims / FOMC Member Kocherlakota Speaks;

6 Jun, Fri: (USD) Non-Farm Employment Change / Unemployment Rate;

8 Jun, Sun: (CNY) Trade Balance

*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.

Gallant Venture  -- -- --   
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Insight: May-19, 1Q19 revenue rose 8% due to higher trucks ... Read More

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