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Singapore Market – Likely Downward Bias
Perspective | 22 September 2014
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By: Ernest Lim
Articles (134) Profile

Asian markets were mixed as the prospect of higher U.S. interest rate hike dimmed the appeal of Asian assets. However, this was offset by the actions from The People’s Bank of China where they cut the rate on the 14-day repurchase agreement to 3.50 percent and started providing 500 billion yuan of funds to their five largest lenders.

In addition, Scotland voted “No” to the independence referendum also stablised market sentiment. (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 consolidate around 1,970 – 2,025. It indeed traded within the range.

It touched an intraday low of around 1,978 on 15 Sep and an intraday high of 2,019 on 19 Sep. S&P500 closed at 2,010 on last Fri. (See Chart 1 below)

S&P500’s RSI closed at 62.0 last Fri. Despite S&P500 moving up 1.3 percent for the past two weeks, the RSI is not overbought yet. Indicators such as MACD and RSI have exhibited bearish divergences.

ADX has declined from 22.7 on 5 Sep to 17.8 on 19 Sep. This seems to indicate a lack of trend. Looking ahead in the next two weeks, S&P500 may consolidate around 1,970 – 2,040 with (likely) a downward bias.

Near term supports are at 1,990 – 1,993 / 1,977 – 1,983. Resistances are at 2,025 / 2,040.

Chart 1: S&P500 – may range trade between 1,970 – 2,040

Source: CIMB itrade complimentary chart (19 Sep 14)

Hang Seng Index
Two weeks ago, I mentioned that Hang Seng’s indicators such as RSI and MACD continue to exhibit bearish divergences.

However, the fall from the high was larger than expected. Hang Seng touched an intraday low of 24,104 before closing at 24,306. Hang Seng’s RSI closed at 43.0.

Looking at Chart 2 below, Hang Seng has retraced more than 23.6 percent since the rally from 21,680 on 7 May 14 to 25,363 on 4 Sep.

Hang Seng has closed below its 50D EMA for five consecutive sessions. The last time that Hang Seng closed for five consecutive sessions below its 50D EMA was in May 14.

In the next two weeks, 23,400 – 23,600 is a key support region which we should observe. It would be bearish if it breaks below 23,400 – 23,600 on a sustained basis. It is positive if it can break above its previous high of 25,363 on a sustained basis.

Near term supports and resistances are at 23,920 – 23,957 / 23,809 and 24,400 / 24,500 respectively.

Chart 2: Hang Seng has closed below its 50D EMA for five consecutive sessions

Source: CIMB itrade complimentary chart (19 Sep 14)

Straits Times Index
Two weeks ago, I mentioned that STI may trade within 3,282 – 3,388 in the next two weeks. For the past two weeks, it touched an intraday high of 3,357 on 12 Sep and a low of 3,266 on 16 Sep. It closed at 3,305 on last Fri.

It is noteworthy that the 21D and 50D EMA have started to turn down, which may cap any upside technical rebound. The support at 3,235 – 3,247 is a critical support.

It is bearish if it breaks 3,235 – 3,247 on a sustained basis and bullish if it can go above 3,388 on a sustained basis. In my opinion, the possibility of a downward bias outweighs that of an upward bias. (See Chart 3 below)

See STI supports and resistances below.

Chart 3: STI 21D and 50D EMA have started to turn down

Source: CIMB itrade complimentary chart (19 Sep 14)

U.S. Market outlook
Events to look forward are the speeches by several FOMC members and how Alibaba share price fare after its debut on 19 Sep.

In addition, notwithstanding the important U.S economic data such as final GDP, core durable goods etc, there are also important data from Germany, France, Europe and China.

Furthermore, ECB President Draghi’s speech would also be widely followed. It is noteworthy that S&P500 has closed higher for sixth out of seven weeks.

Personally, I would think any potential upside in the next two weeks may be limited to around 1-2 percent unless there are new positive catalysts.

Singapore Market outlook
For the past two weeks, I have raised from 30-50 percent equity allocation to 70-80 percent as of last Fri. Given that my view is that there is likely to be a downward bias to our Singapore market, I am likely to reduce my percentage invested to around 40-60 percent.

China Sunsine ( see article) has risen much faster than my expectations. Within a span of 14 trading days, it jumped a whopping 37 percent from $0.310 on 2 Sep to close $0.425 last Fri (intraday high was $0.435).

Since my first writeup on Sunsine on 21 Feb, it has surged an approximate 71 percent. RSI is at a very overbought level of 85.2, near to its all time high RSI of around 88.4.

Chart 4: Overbought with RSI of 85.2

Source: CIMB itrade complimentary chart (19 Sep 14)

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: 3,305

Support 1: 3,286

Support 2: 3,264 – 3,266

Support 3: 3,247

Support 4: 3,235

Resistance 1: 3,313

Resistance 2: 3,319

Resistance 3: 3,339

Resistance 4: 3,350 – 3,352

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

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

20 Sep, Sat: (ALL) G20 Day 1;

21 Sep, Sun: (ALL) G20 Day 2;

22 Sep, Mon: (EUR) ECB President Draghi Speaks; (USD) Existing Home Sales / FOMC Member Dudley & Member Kocherlakota Speak;

23 Sep, Tues: (CNY) HSBC Flash Manufacturing PMI; (EUR) Europe / Germany / France Flash Manufacturing PMI; (USD) Flash Manufacturing PMI / Richmond Manufacturing Index / FOMC Member Powell & Member Kocherlakota Speak;

24 Sep, Wed: (EUR) German IFO Business Climate; (USD) New Home Sales / FOMC Member Mester Speaks;

25 Sep, Thurs: (USD) Core Durable Goods Orders m/m / Durable Goods Orders m/m / Unemployment Claims / Flash Services PMI;

26 Sep, Fri: (CNY) CB Leading Index m/m; (USD) Final GDP q/q / 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.

China Sunsine Chemical Hldgs  1.140 -0.010 -0.87%   
Business: Co produces rubber chemicals for the pdtn of rubber tyres & other rubber pdts. [FY18 Turnover] Rubber chemicals (99.4%), heating power and others (0.6%).

Insight: Feb-19, FY18 revenue rose 20% mainly due to the in... Read More

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