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Straits Times 3,114.16 -11.98 -0.38%
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Markets – Likely Range Trade In The Near Term
Perspective | 08 September 2014
By: Ernest Lim
Articles (134) Profile

Asian markets continued their climb on mostly strong U.S. economic data (excluding the jobs report), better than expected China services PMI, ECB rate cut and asset buying program. (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’s overall technical picture has turned to neutral, if not a tad positive and highlighted the possibility that it may cross above 2,000 in the next two weeks. S&P500 indeed crossed 2,000 and closed at 2,008. (See Chart 1 below)

S&P500’s RSI closed at 66.4 last Fri. Despite S&P500 making a new record close, the RSI is not oversold yet. Although ADX is still above 20 (closed at 22.7 on last Fri), it seems to be declining. Looking ahead in the next two weeks, S&P500 may consolidate around 1,970 – 2,025. As mentioned two weeks ago, S&P500 is unlikely to breach 2,025 on a sustained basis without some form of consolidation.

Near term supports are at 1,990-1,992 / 1,985 / 1,970. Resistances are at 2,025 / 2,050.

Chart 1: S&P500 – may consolidate around 1,970 – 2,025

Source: CIMB itrade complimentary chart (5 Sep 14)

Hang Seng Index
Two weeks ago, I mentioned that it will be good if Hang Seng can consolidate around the region 24,660 – 25,423. Hang Seng indeed traded in the range 24,576 – 25,363 for the past two weeks. With this consolidation, RSI has weakened from 68.9 on 22 Aug to 64.8 on 5 Sep.

The indicators such as RSI and MACD continue to exhibit bearish divergences. ADX has slid from 29.9 on 22 Aug to 22.2 on 5 Sep. Given the persistent bearish divergences and weakening ADX, Hang Seng may trade within 24,885 – 25,874. (See Chart 2 below)

Near term supports and resistances are at 24,885 / 24,400 – 24,500 and 25,423 / 25,874 respectively.

Chart 2: Hang Seng may trade within 24,885 – 25,874

Source: CIMB itrade complimentary chart (5 Sep 14)

Straits Times Index
Two weeks ago, I mentioned that 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. STI tried to breach it on 28 Aug but there was no follow through.

I will continue to observe the price action on the chart. With the low ADX of 19.0, STI may trade within 3,282 – 3,388 in the next two weeks. It is noteworthy that the medium term trend looks positive as evidenced by the rising 21D, 50D, 100D & 200D EMAs. (See Chart 3 below)

See STI supports and resistances below.

Chart 3: STI likely trade within 3,282 – 3,388 in the next two weeks

Source: CIMB itrade complimentary chart (5 Sep 14)

U.S. Market outlook
U.S. markets continue to be buoyant amid mostly good economic data and a supportive Fed. In the next two weeks, an important event would be the FOMC Meeting scheduled on 18 Sep morning where investors would scrutinise the FOMC statement and their press conference. Barring any unforeseen circumstances, the U.S. market is likely to range trade around 1,970 – 2,025 in the next two weeks.

Singapore Market outlook
Despite the lacklustre Singapore market, there are still some stocks which captured market attention in the last two weeks. Examples are Stats Chippac and Rex International.

Notwithstanding the record high levels of S&P500, FOMC on 18 Sep, 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, discipline, nimble and do our homework before we initiate positions. As of now, I am comfortable to maintain a 30-50 percent equity allocation but would be nimble to raise 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: 3,342

Support 1: 3,339

Support 2: 3,327

Support 3: 3,312

Support 4: 3,282 – 3,286

Resistance 1: 3,367

Resistance 2: 3,388

Resistance 3: 3,400

Resistance 4: 3,425

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

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

8 Sep, Mon: (CNY) **Trade Balance;

9 Sep, Tues: (GBP) BOE Gov Carney Speaks / Manufacturing Production m/m; (USD) JOLTS Job Openings / FOMC Member Tarullo Speaks;

10 Sep, Wed: (CNY) *** New Loans / ***M2 Money Supply; (GBP) Inflation Report Hearings;

11 Sep, Thurs: (CNY) CPI / PPI; (USD) Unemployment Claims;

12 Sep, Fri: (JPY) BOJ Gov Kuroda Speaks; (EUR) ECOFIN Meetings; (USD) Core Retail Sales / Retail Sales / Prelim UoM Consumer Sentiment;

13 Sep. Sat: (CNY) Industrial Production y/y / Fixed Asset Investment ytd/y / Retail Sales

*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.

**Trade Balance (CNY) is tentatively scheduled for release on 8 Sep.

***New Loans / ***M2 Money Supply (CNY) are tentatively scheduled for release on 10-14 Sep.

→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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