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Singapore Market – Near-Term Selling Pressures To Ease With Possible Technical Rebound
Perspective | 07 October 2014
By: Ernest Lim
Articles (134) Profile

With the exception of China, Asian markets dropped between 2 percent to 5 percent. This was mainly attributable to the weakness in the US equity markets; the prospect of rising interest rate in the US resulted in some fund outflows from the Asian markets. The umbrella revolution in Hong Kong also weighed on sentiments.

Table 1: Indices’ Performances Over Past 2 Weeks

Source: Bloomberg; Ernest’s Compilations

S&P 500 Index
Two weeks ago, I mentioned that S&P 500 may consolidate around 1,970 to 2,040 with (likely) a downward bias due to the bearish divergences exhibited by indicators such as moving average convergence divergence (MACD) and relative strength index (RSI). It dropped indeed but the weakness was faster than expected.

On the early afternoon of 2 October, I followed up with an email to my clients citing that S&P 500 near-term downside was likely capped at around 1,890 to 1,910, or approximately 3 percent. On the night of 2 October, S&P 500 touched an intraday low of around 1,926 but closed at 1,946, near its opening price on the same day. This formed a doji which was a potential reversal pattern. Subsequently, it rebounded with a 22 points or 1.1 percent gain, the largest gain in almost two months to close at 1,968 last Friday.

Looking at Chart 1 below, S&P 500 might have formed a minor double top formation with the neckline at approximately 1,979. The measured technical target for this downside breakout was around 1,947 which had been met. The RSI closed at 45.8 on last Friday.

Looking ahead in the next two weeks, near-term selling pressures are likely to abate. S&P 500 may consolidate around 1,940 to 2,010.

Near-term supports and resistances are at 1,953 / 1,946 and 1,970 – 1,980 / 1,997 respectively.

Chart 1: S&P 500 

Source: CIMB iTrade Complimentary Chart (3 Oct-14)

Hang Seng Index
Two weeks ago, I mentioned that Hang Seng has closed below its 50-day exponential moving average (EMA) for five consecutive sessions and it would be bearish should it break below the range of 23,400 to 23,600 on a sustained basis. Hang Seng closed at 23,678 on 26 September and opened right at 23,400 (i.e. gapped down) and went lower on 27 September. This was a bearish development and Hang Seng continued its descent until 3 October.  Hang Seng almost touched the 76.4 percent retracement at 22,550 but closed higher at 23,065. The RSI closed at 27.9 last Friday.

Looking ahead in the next two weeks, Friday’s close may be the start of a reversal, or at the very least, selling pressures should abate soon. In addition, indicators such as RSI and MACD are in the oversold regions and are likely to trigger a near-term technical rebound.

Near term supports and resistances are at 22,766 / 22,550 and 23,400 – 23,557 / 23,800 respectively.

Chart 2: Hang Seng 

Source: CIMB itrade complimentary chart (3 Oct 14)

Straits Times Index
Two weeks ago, I mentioned that any technical rebound might be capped by its 21-day and 50-day EMA. I also wrote that the possibility of a downward bias outweighed that of an upward bias. Over the past two weeks, STI closed 1.6 percent lower.

On the early afternoon of 2 October, I emailed a market update to my clients citing with the recent large drop, STI’s near-term downside was likely limited and capped at around 3,222 to 3,250.  STI touched 3,223 last Friday and immediately closed higher by 25 points or 0.8 percent at 3,253.

With reference to Chart 3 below, STI might have broken a minor double top formation with the neckline at around 3,289. The measured technical target of this downside breakout was around 3,221 which coincided with my support 3,222 (i.e. 38.2 percent Fibonacci retracement). Personally, I would view that STI had reached its near-term downside technical target.

In the next two weeks, it is likely that selling pressures would ease, with a likely technical rebound.

STIsupports and resistances are stated in Chart 3.

Chart 3: STI 

Source: CIMB iTrade Complimentary Chart (3 Oct-14)

US Market Outlook
Two weeks ago, I pointed that S&P 500 had closed higher for six out of seven weeks and the potential upside was likely to be limited to around 1 percent to 2 percent. For the past two weeks, S&P 500 closed 2.1 percent lower.

Looking ahead, market watchers will gradually focus on US corporate results with Aloca’s results releasing on 8 October. However, corporate results will shift to high gear probably around the third or fourth week of October. Besides corporate results, we also have to keep an eye on the various geopolitical risks and the progress of the Ebola virus. Volatility has also started to return to the US markets in view of the above worries.

Notwithstanding the above, I would think the near-term selling pressures on the US markets are likely to have eased. Corporate results are the primary near-term catalyst if we want to see market to stage a stronger rebound.

Singapore Market Outlook

Two weeks ago, I mentioned that I am likely to reduce my percentage invested to around 40 percent to 60 percent, given that my view is that there is likely to be a downward bias to our Singapore market. I have done it at the early part of last two weeks to trim my percentage invested to around 60 percent.

Over the past two weeks, the market was notably weak with the bulk of the weakness over the 30 September to 2 October period. I took the opportunity to accumulate some extremely oversold stocks to raise my equity allocation to around 77 percent.

In the next two weeks, as my view is that there is likely to be a technical rebound (at the very least, selling pressures should have eased), I am likely to raise my equity allocation from the current 77 percent to more than 90 percent (provided opportunities arise).

Please note that I am putting my equity allocation 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: 3,253

Support 1: 3,221-3,223

Support 2: 3,185 – 3,188

Support 3: 3,171

Support 4: 3,146 – 3,150

Resistance 1: 3,277

Resistance 2: 3,283 – 3,290

Resistance 3: 3,301

Resistance 4: 3,310

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

Summary of Economic Calendar for the week ahead (Singapore time)

6 Oct, Mon: (EUR) German Factory Orders;

7 Oct, Tues: (JPY) Monetary Policy Statement / BOJ Press Conference; (GBP) Manufacturing Production m/m; (USD) FOMC Member Kocherlakota & Dudley speak;

8 Oct, Wed: (CNY) HSBC Services PMI; (USD) FOMC Meeting Minutes;

9 Oct, Thurs: (ALL) G20 Meeting Day 1; (GBP) BOE Meeting; (EUR) ECB President Draghi Speaks; (USD) Unemployment Claims;

10 Oct, Fri: (ALL) G20 Meeting Day 2 / IMF Meeting Day 1; (CNY) M2 Money Supply y/y / New Loans; (USD) FOMC Member Plosser Speak;

11 Oct, Sat: (ALL) IMF Meeting Day 2;

12 Oct, Sun: (ALL) IMF Meeting Day 3;

*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.

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

→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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