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Straits Times 3,124.45 +10.48 +0.34%
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Asian Indices May March Higher
Perspective | 17 November 2014
By: Ernest Lim
Articles (134) Profile

Asian indices continued to move higher on strong U.S.corporate results, mostly better than expected U.S.data and increasing expectations on China for more easing measures. China and Hong Kong markets also jumped due to the finalisation of the Hong Kong and Shanghai Trading Link, scheduled to commence on 17 November, Mon. [See Table 1 for the indices’ performance over the past two weeks.]

Table 1: Indices’ performance over the past four weeks

Source: Bloomberg; Ernest’s compilations

S&P500 Index
Two weeks ago, I mentioned that there may be some profit taking on the S&P500 after the sharp rally. Near term resistance was likely capped at around 2,025 – 2,050. For the subsequent two weeks, S&P500 briefly dropped to an intraday low of 2,001 before closing at 2,040 last Fri.

Based on Chart 1 below, S&P500 has been trading within a tight range of 2,030 – 2,046 for the past five trading sessions. RSI closed at approximately a four month high at around 68.3. Although RSI is near the overbought region, S&P500 is still on an uptrend. Any pullback is likely to be mild. Near term supports and resistances are raised to 2,019 / 2,000 – 2,003 and 2,050 / 2,075 respectively.

Chart 1: Near term supports and resistances → 2,019 / 2,000 – 2,003 and 2,050 / 2,075 respectively

Source: CIMB itrade complimentary chart (14 Nov 14)

Hang Seng Index
Hang Seng closed at 24,087 on last Fri, up 0.4 percent for the past two weeks. Two weeks ago, I mentioned that it would have been better if 21D EMA can cross above 50D and 100D EMA (i.e. golden crosses) so that the medium term outlook is more positive.

Based on Chart 2 below, Hang Seng’s 21D EMA seems to be on the verge of forming golden crosses this week with 50D and 100D EMA. This is a positive sign. Hang Seng has been range trading approximately between 23,550 and 24,110 for the past two weeks. Based on the chart’s development, there is a good chance that it can break the consolidation range on the upside in the next two weeks. Near term supports and resistances are at 23,715 – 23,753 / 23,625 and 24,500 / 24,670 – 24,700 respectively.

Chart 2: Hang Seng likely to stage an upside breakout of its 23,550 – 24,110 consolidation range soon

Source: CIMB itrade complimentary chart (14 Nov 14)

Straits Times Index
Two weeks ago, I wrote that STI might have formed an inverse head and shoulder pattern (i.e. a reversal pattern) with an eventual measured technical target of around 3,325.

With reference to Chart 3 below, STI traded within a tight range of 43 points between 3,274 and 3,317 for the past two weeks, before closing at a two month high of 3,316. 21D EMA has crossed the 200D EMA on 5 Nov and is on the verge of crossing above the 50D EMA and 100D EMA. 50D EMA is also on the verge of crossing above 100D EMA. RSI closed at 63.1 last Fri which is not overbought yet. Although STI has almost reached my measured technical target of 3,325, the technical setup looks positive and may go higher in the next few weeks.

See STI supports and resistances below.

Chart 3: STI chart – forming golden crosses

Source: CIMB itrade complimentary chart (14 Nov 14)

U.S. Market outlook
U.S. market continues to be buoyed by stronger than expected corporate results, mostly better than expected economic data and the monetary easing by the other economies.

As we are approaching the year end, it is likely that volume may shrink in the next few weeks. Volatility may spike on the backdrop of a reduction in volume. Although the direction for the U.S. market remains up, the largest gains may have already been made. Clients who have made money in the U.S. markets can consider rebalancing their portfolios and allocating more weightage to the Asian markets with a long term horizon.

Singapore Market outlook
Two weeks ago, I mentioned that I was around 90 percent invested and was likely to switch to other stocks for potential results play. I did according to my plan. I was more than fully invested at some point during the past two weeks (i.e. used leverage) as my target was to speculate on “results play” (i.e. companies which are going to report results). I have taken profit on most stocks after their results and am now around 55 percent invested in equities.

Looking ahead to the next few weeks, transaction volume may shrink as we approach the year end. Volatility may perk up with this reduction in volume. I am likely to raise my percent invested on weakness in the next few weeks ahead of the potential Christmas / Capricorn rally. (Clients have and will be notified of such 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 and without prior notice. 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: 3,316

Support 1: 3,297

Support 2: 3,289

Support 3: 3,269 – 3,271

Support 4: 3,332

Resistance 1: 3,339

Resistance 2: 3,357

Resistance 3: 3,366

Resistance 4: 3,388

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

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

17 Nov, Mon: (JPY) Prelim GDP q/q; (EUR) ECB President Draghi Speaks; (USD) Empire State Manufacturing Index;

18 Nov, Tues: (EUR) German ZEW Economic Sentiment; (USD) PPI m/m / NAHB Housing Market Index / FOMC Member Kocherlakota Speaks;

19 Nov, Wed: (JPY) Monetary Policy Statement / BOJ Press Conference; (GBP) MPC Asset Purchase Facility Votes / MPC Official Bank Rate Votes; (USD) Building Permits / FOMC Meeting Minutes;

20 Nov, Thurs: (CNY) HSBC Flash Manufacturing PMI; (EUR) French, Germany and Europe Flash Manufacturing & Services PMI / ECB President Draghi Speaks; (GBP) Retail Sales m/m; (USD) Unemployment Claims / Core CPI / Philly Fed Manufacturing Index / Existing Home Sales / FOMC Member Mester Speaks;

*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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