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Straits Times 3,126.14 -8.57 -0.27%
Hang Seng 26,848.49 +184.21 +0.69%
Dow Jones 27,042.40 +40.42 +0.15%
Shanghai Composite 2,977.33 -1.38 -0.05%
Volatility – Likely to pick up
Perspective | 15 July 2014
By: Ernest Lim
Articles (134) Profile

Asian markets jumped between 0.1 – 0.7 percent on reassuring economic data such as employment data and ADP Non-Farm Employment Change which overshadowed concern over financial stress in Europe. (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

Technical analysis of indices’ charts

S&P500 Index
Two weeks ago, I mentioned that indicators such as RSI, MACD etc. exhibited bearish divergences with S&P500 which cautioned me from taking excessive big bets on the market. (S&P500 moved up 0.3 percent slightly over the past two weeks.)

The trend remains up but S&P500 is in danger of breaking below the 21D EMA. (See Chart 1 below).

Near term supports are at 1,955 – 1,959 / 1,949 – 1,953 / 1,933. Resistances are at 1,986 / 2,000 / 2,025.

Chart 1: S&P500 – uptrend remains but in danger of breaking 21D EMA

Source: CIMB itrade complimentary chart (11 Jul 14)

Hang Seng Index
Two weeks ago, I wrote that Hang Seng’s chart recently showed weak bearish divergences with the indicators such as RSI and MACD. Hang Seng closed +0.1 percent to 23,233 for the past two weeks.

Indicators such as RSI and MACD continue to show bearish divergences. Hang Seng’s ADX has weakened from 23.0 on 27 June to 18.8 on 11 Jul. Hang Seng is likely to range trade within 22,600 – 24,000. (See Chart 2 below)

Near term supports and resistances are at 23,003 – 23,021 / 22,832 / 22,659 – 22,672 and 23,428 / 23,557 / 23,705 respectively.

Chart 2: Hang Seng chart still on an uptrend but likely range trade in the near term

Source: CIMB itrade complimentary chart (11 Jul 14)

Straits Times Index
Two weeks ago, I mentioned that STI was likely to trade within a range 3,222 – 3,310 amid a declining ADX. Nevertheless, there was a minor trend line “A” which might incite more selling if price broke below it with volume expansion.

STI tumbled 1.1 percent after breaking below the trend line “A” on 30 Jun. It traded between the range 3,234 – 3,294 (just within the above mentioned range) for the past two weeks. ADX continued to fall to 11.0 which was near to the lower end of the historical range.

Looking ahead to the next two weeks, STI is likely to trade within a range 3,200 – 3,344 amid a declining ADX. (See Chart 3 below)

See STI supports and resistances below.

Chart 3: Likely range trade between 3,200 – 3,344

Source: CIMB itrade complimentary chart (11 Jul 14)

U.S. Market outlook
Looking ahead to the next two weeks, about 302 S&P500 companies are going to report their results in the next two weeks. Volatility has been very low. It is noteworthy that the rally in the S&P 500 has not dropped >=10 percent in more than two years, and has not fallen by more than 2 percent on a closing basis since April.

I reiterate that S&P500 near term upside is likely to be capped around 1,975 – 2,000 in the near term. With the limited near term potential upside, I prefer to be cautious. Volatility may pick up as the earning season shifts into high gear. (This is why you may have noticed that the range given for the above indices is pretty large)

Singapore Market outlook
As per my bi weekly market update two weeks ago, I mentioned that I remain cautious in the near term but positive on the equity market over the long term. I also mentioned that I was likely to maintain an equity allocation between 30-50 percent in this near term unless there were compelling reasons to buy or sell in a big way.

In the short term (say 2 weeks), I am cautious but likely to remain invested around 30-50 percent (assuming that I can find stocks to buy as I may take profit on some stocks) unless there are more clear cut buy or sell signals. I may look to accumulate some stocks ahead of their 2Q results announcement on weakness. (As usual, clients have and will be informed if such opportunities arise).

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: 3,294

Support 1: 3,277

Support 2: 3,270

Support 3: 3,262

Support 4: 3,230 – 3,234

Resistance 1: 3,298

Resistance 2: 3,309 – 3,311

Resistance 3: 3,331

Resistance 4: 3,345

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

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

14 Jul, Mon: (CNY) **M2 Money Supply / New Loans; (EUR) Industrial Production m/m / ECB President Draghi Speaks;

15 Jul, Tues: (JPY) Monetary Policy Statement / BOJ Press Conference; (GBP) CPI / BOE Gov Carney Speaks; (EUR) German ZEW Economic Sentiment; (USD) Core Retail Sales m/m / Retail Sales m/m / Empire State Manufacturing Index / Fed Chair Yellen Testifies;

16 Jul, Wed: (CNY) GDP q/y / Industrial Production y/y / Fixed Asset Investment ytd/y / NBS Press Conference / Retail Sales y/y; (USD) PPI m/m / Fed Chair Yellen Testifies / NAHB Housing Market Index / FOMC Member Fisher Speaks / Beige Book;

17 Jul, Thurs: (USD) Unemployment Claims / Building Permits / Housing Starts / Philly Fed Manufacturing Index;

18 Jul, Fri: (USD) 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.

**M2 Money Supply / New Loans are tentatively scheduled for release between 14 – 16 Jul.

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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