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Positioning Ahead Of A Potential Christmas / Capricorn Rally
Perspective | 15 December 2014
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By: Ernest Lim
Articles (134) Profile

Most Asian indices dropped on a multitude of worries ranging from the repercussions from the oil rout (e.g. the impact on those countries which rely heavily on oil exports), weaker than expected growth in Europe & China, upcoming Greek election etc. With the exception of China, most Asian indices ended in the red. [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, when S&P500 closed at 2,068 on 28 Nov, I mentioned that S&P500’s near term indicators such as RSI and MFI were stretched on the high side and they were showing mild divergences with price.

I also mentioned that S&P500 was unlikely to breach 2,075 – 2,100 from 28 Nov – 12 Dec.

S&P500 reached an intraday record high of 2,079 on 5 Dec but closed at 2,075 on the same day. Subsequently, it fell 77 points or 3.7 percent to the mentioned support region of 2000 – 2,010. S&P500 closed at 2,002 on 12 Dec.

RSI has fallen substantially and closed at 37.4. This is near to a two year low RSI level of around 30.

Based on current chart information, S&P500 is likely to find near term supports around 1,992 / 1,970 – 1,980 with strong support at 1,940 – 1,950. Resistances are at 2,020 / 2,030 / 2,043. See Chart 1 below.

Chart 1: S&P500 weakened and found support 2,000 – 2,010, in line with expectations

Source: CIMB itrade complimentary chart (12 Dec 14)

Hang Seng Index
Two weeks ago, I wrote that given the low ADX, Hang Seng might continue to trade within a range of 23,200 – 24,500 in the next two weeks (i.e. 28 Nov – 12 Dec). Hang Seng closed at 23,987 on 28 Nov.

The above observation was spot on as Hang Seng traded between a range of 23,170 – 24,190 for the past two weeks. Hang Seng closed at 23,249 on 12 Dec.

Based on Chart 2 below, Hang Seng seems to be testing the lower range of the short term trading range 23,250 – 24,180. A breakdown from this trading range with volume expansion points to a measured technical target of around 22,320.

In the next two weeks, my personal view is that Hang Seng may trade within the range of 22,550 – 23,700. Near term supports and resistances are at 22,850 – 23,000 / 22,550 and 23,472 / 23,625 – 23,700 respectively.

Chart 2: Hang Seng may range trade 22,550 – 23,760 in the near term

Source: CIMB itrade complimentary chart (12 Dec 14)

Straits Times Index
Two weeks ago, I wrote that although STI’s trend was up, given the declining ADX, it was likely that STI might have difficulty pushing above this year’s high of 3,388 in the next 1-2 weeks.

STI traded to a high of 3,357 on 1 Dec (spot on for my resistance level 1) before tumbling to a low of 3,298 (near to my support level 3 of 3,297) and closed at 3,324 on 12 Dec.

Given the low ADX of 12.9, it is likely that STI may trade within the range 3,270 – 3,340 in the near term. It should find good support at 3,263 (200D EMA). Strong resistance is likely to be around 3,388.

See STI supports and resistances below.

Chart 3: STI – may trade within the range 3,270 – 3,340 in the near term

Source: CIMB itrade complimentary chart (12 Dec 14)

U.S. Market Outlook
U.S. market has suffered some profit taking after hitting a high of 2,079 on 5 Dec. Most strategists believe that U.S. market continues to be an attractive place to invest amid the strengthening economy, rising appeal of dollar and the decreasing attractiveness in other markets such as Europe.

Singapore Market Outlook
Two weeks ago (28 Nov), I mentioned that I was about 20 percent invested and was looking to accumulate some stocks pending my research. Since 28 Nov, I have done several trades and raised my equity exposure to 85 percent.

I may raise to 100 percent or more depending on market conditions and pending research. (Clients have and will be notified of such general trading ideas).

Personally, my view is that there is chance for a potential Christmas / Capricorn rally or on earnings expectations as we head towards the 4Q reporting period in Jan / Feb.

Oil And Gas Stocks
For the past three days, I noticed that oil and gas plays were stabilising despite the weakness in oil price. Amid the simultaneous drop in S&P500 and oil last Fri, it would be good to see how the oil and gas stocks react on Mon / this week.

If they did not break prior lows or they rebound quickly after breaking their prior lows, it may be a form of base formation. Let’s see how the oil and gas stocks react next week.

Chart Alert: QT Vascular
For QT Vascular, based on chart observation, if it can breach $0.295 with volume expansion, it will have formed a double bottom formation with measured eventual technical target of $0.325. A break below $0.265 with volume expansion would be negative.

Chart 4: QT Vascular – bullish if it can breach $0.295 with volume expansion

Source: CIMB itrade complimentary chart (12 Dec 14)

Please note that I am putting my equity allocation and selected stocks above just for general discussion purpose. Due to my work nature, I can change my equity allocation and the stocks quickly and without prior notice.

Furthermore, I exercise an active approach in portfolio management with a relatively short horizon. 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: 3,324

Support 1: 3,297 – 3,299

Support 2: 3,288

Support 3: 3,263 – 3,269

Support 4: 3,241

Resistance 1: 3,337 – 3,340

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)

14 Dec, Sun: (JPY) Lower House Elections;

15 Dec, Mon: (JPY) Tankan Manufacturing Index; (USD) Empire State Manufacturing Index;

16 Dec, Tues: (CNY) HSBC Flash Manufacturing PMI / Foreign Direct Investment ytd/y; (GBP) Bank Stress Test Results / BOE Gov Carney Speaks; (EUR) French, Europe & Germany Flash Manufacturing & Services PMI / German ZEW Economic Sentiment; (USD) Building Permits / Housing Starts / Flash Manufacturing PMI;

17 Dec, Wed: (USD) Core CPI m/m / Crude Oil Inventories / FOMC Statement / FOMC Press Conference;

18 Dec, Thurs: (EUR) German Ifo Business Climate / EU Economic Summit Day 1; (GBP) Retail Sales m/m; (USD) Unemployment Claims / Philly Fed Manufacturing Index;

19 Dec, Fri: (JPY) Monetary Policy Statement / BOJ Press Conference; (EUR) EU Economic Summit Day 2;

*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.

QT Vascular  -- -- --   
Business: Development and sale of medical devices

Insight: May-19, 1Q19 revenue fell 30.8% to US$2.1m due to ... Read More

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