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Amid Record S&P500 & Quiet Singapore Market, Trading Opportunities Continue To Exist
Perspective | 26 August 2014
By: Ernest Lim
Articles (134) Profile

Asian markets jumped on views that central bankers are still committed to support the economies, relatively benign U.S.economic data, easing Ukraine/ Russia tensions and continued strong performance in Hong Kong and China markets. (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

S&P500 Index
Two weeks ago, I mentioned that S&P500 may have a small technical rebound but the probability of a strong sustained close above 1,945 – 1,953 is low.

S&P500 indeed rebounded but the rebound was strong to push it above 1,945 – 1,953. It actually moved below 1,945 and touched an intraday low of 1,942 on 15 Aug on news that Ukraine has attacked an armed convoy that had crossed the border from Russian territory.

However, it pared declines and closed unchanged at 1,955 on the same day. This underscored the strength of the rebound. It subsequently pushed higher and touched an intraday record high of 1,995 on 21 Aug. It closed 1,988 on last Fri. (See Chart 1 below)

As S&P500 managed to overcome the resistance region of 1,945 – 1,953 with such momentum and speed, the overall picture of the indices has turned to neutral, if not a tad positive. RSI closed at 62.6 (not overbought).

In the next two weeks, S&P500 may cross above 2,000. However, it is unlikely to breach 2,025 without some form of consolidation.

Near term supports are at 1,985 / 1,970 / 1,962. Resistances are at 1,993 / 2,000 / 2,025.

Chart 1: S&P500 – may cross 2,000 but unlikely breach 2,025 in the next two weeks without some consolidation

Source: CIMB itrade complimentary chart (22 Aug 14)

Hang Seng Index
Two weeks ago, I mentioned that Hang Seng remained one of the strongest charts with relative strength. It jumped 3.2 percent over the past two weeks, outperforming both S&P500 (+2.9%) and STI (+1.1%).

Hang Seng has moved approximately 1,010 points from the intraday low of 24,191 on 8 Aug to an intraday high of 25,201 on 19 Aug. Some of the indicators such as RSI and MACD are exhibiting bearish divergences.

Hang Seng’s RSI closed at 68.9 on last Fri. In the next two weeks, it will be good if Hang Seng can consolidate around the region 24,660 – 25,423. (See Chart 2 below)

Near term supports and resistances are at 24,895 / 24,660 and 25,423 / 25,874 respectively.

Chart 2: Hang Seng has moved almost 1,010 points from 8 Aug – 19 Aug

Source: CIMB itrade complimentary chart (22 Aug 14)

Straits Times Index
Two weeks ago, I mentioned that STI is likely to see some technical rebound in the next few days. STI indeed moved 1.1 percent over the past two weeks.

Over the next two weeks, it will be good to observe whether STI can breach the uptrend line formed since Feb 2014. If it can breach and move above the uptrend line on a sustained basis, the overall technical picture would become better.

It is noteworthy that the 21 day, 50 day and 100 day EMAs have stopped declining and seem to be moving higher which bodes well for the longer term chart development of the STI. (See Chart 3 below)

See STI supports and resistances below.

Chart 3: STI – technical outlook turns positive if it breaches uptrend line on a sustained basis

Source: CIMB itrade complimentary chart (22 Aug 14)

U.S. Market outlook
Since two weeks ago, U.S. indices’ charts have improved as Fed Chair Yellen continues to emphasise the slack in the labour market and the Fed is likely to see more improvement from the labour market before they raise interest rates.

Amid the backdrop of supportive central banks, coupled with geopolitical risks as the wildcard, my view is that U.S. market may range trade between 1,951 – 2,025 in the next two weeks.

Singapore Market outlook
For the past two weeks, I have adhered to my plan. I have raised my percentage invested in equities to >100 percent via CFD (i.e. leverage) as the results season goes into full swing.

As most of these trades were event driven, I have reduced my percentage invested from >100 percent to around 35 percent by Fri, 22 Aug.

For those clients with a high risk profile, they should have done pretty well entering these event driven trades. Notwithstanding the record high levels of S&P500, the ongoing geopolitical risks / Ebola and the quiet Singapore market, I reiterate that there are (usually) always opportunities to trade or invest, as long as we are patient, disciplined and do our homework before we initiate positions.

As of now, I am comfortable to maintain a 30-50 percent equity allocation and may raise to 70-80 percent in the next few weeks if I can find more ideas at appropriate valuations. (Clients have and will be notified of such potential opportunities.)

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: 3,326

Support 1: 3,316

Support 2: 3,302

Support 3: 3,286

Support 4: 3,270

Resistance 1: 3,339

Resistance 2: 3,367

Resistance 3: 3,388

Resistance 4: 3,400

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

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

25 Aug, Mon: (EUR) German Ifo Business Climate; (USD) New Home Sales;

26 Aug, Tues: (CNY) CB Leading Index m/m; (USD) Core Durable & Durable Goods Orders m/m / S&P/CS Composite-20 HPI y/y / CB Consumer Confidence / Richmond Manufacturing Index;

28 Aug, Thurs: (USD) Prelim GDP q/q / Unemployment Claims / Pending Home Sales m/m;

29 Aug, Fri: (EUR) Core CPI & CPI Flash Estimate y/y; (USD) Personal Spending & Income / Chicago 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.

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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