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Russell 2000 Hit Record High! Singapore Small / Mid Cap To Follow Suit?
Perspective | 29 December 2014
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By: Ernest Lim
Articles (134) Profile

This has been a volatile two weeks where the S&P500 dropped to an approximate one and a half month low on 16 Dec and STI almost a two month intraday low on 17 Dec.

On 16 Dec morning, I have emailed to all clients citing the strong support levels for both indices and the limited potential downside for both indices in the short term. (see elaboration below)

For the past two weeks, Asian indices closed higher after the Fed mentioned that it would be patient on the timing of interest-rate increases.

In addition, the strong U.S. economic data and speculation that China would do more to boost its economy bolstered the demand for equities. [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 was likely to find near term supports around 1,992 / 1,970 – 1,980 with strong support at 1,940 – 1,950.

On 16 Dec morning, I noticed that S&P500, in its overnight trading session (i.e. 15 Dec) failed to breach the resistance around 2,020 and closed lower at 1,990.

Thus, I quickly sent out an email to update my clients and reiterated my view that S&P500 had two strong support levels around 1,970 – 1,980 and 1,940 – 1,950. i.e. potential near term downside was limited to around 2.5 percent if we took the lowest support level of 1,940.

S&P500 touched my first mentioned strong support level 1,970 – 1,980 by closing -0.9 percent to 1,973 on 16 Dec.

On 17 Dec, S&P500 promptly rebounded with a 2.0% rally, followed by another 2.4% jump on 18 Dec. In fact, it has gained in six out of the seven past trading sessions with a cumulative gain of 5.9% since 16 Dec. S&P500 closed at 2,089 on 26 Dec.

RSI also rebounded from 30.8 on 16 Dec (near to my previously mentioned two year low levels of around 30) to 62.6 on 26 Dec.

It is noteworthy that S&P500 has rebounded in six out of the seven past trading sessions. Personally, there may be some upwards push to 2,098 – 2,100 but it may not close above 2,100 on a sustained basis in the next two weeks without some form of consolidation.

Near term supports are around 2,075 – 2,079 / 2,052 – 2,054. Resistances are at 2,098 – 2,100 / 2,110. See Chart 1 below.

Chart 1: S&P500 rebounded strongly from my mentioned support 1,970 – 1,980

Source: CIMB itrade complimentary chart (26 Dec 14)

Hang Seng Index
Two weeks ago, I wrote that Hang Seng might trade within the range of 22,550 – 23,700. In retrospect, this was pretty prescient as Hang Seng traded within the range of 22,530 – 23,496 for the past two weeks.

Given the persistent weak ADX (it closed at 14.6 on 26 Dec), Hang Seng may continue to trade within the range of 22,500 – 24,300 in the next two weeks.

Hang Seng closed at 23,349 on 26 Dec. Near term supports and resistances are at 23,200 / 22,864 and 23,600 – 23,625 / 23,760 respectively.

Chart 2: Hang Seng may trade within the range of 22,500 – 24,300 in the next two weeks

Source: CIMB itrade complimentary chart (26 Dec 14)

Straits Times Index
Two weeks ago, I wrote that STI might trade within the range 3,270 – 3,340 with good support at 3,263 (200D EMA).

On 16 Dec morning, I noticed that STI has breached 3,263 and I quickly sent out an email to inform all my clients.

I pointed a region of strong support to be around 3,220 – 3,241 (i.e. it is unlikely to be breached on a sustained basis). Based on 3,220, I wrote that near term downside seemed limited.

STI closed at 3,215 on 16 Dec, below my support level of 3,220. On 17 Dec, it touched an intra day low of 3,201 before reversing its losses to close at 3,227. Subsequently, it surged 153 points, or 4.8% from the intraday low of 3,201 on 17 Dec to close at 3,354 on 26 Dec.

Based on Chart 3, it is likely that STI may continue to push higher, underpinned by strength in the banks. It is likely that STI may head towards 3,388 – 3,425 in the near term.

See STI supports and resistances below.

Chart 3: STI may head towards 3,388 – 3,425 in the near term

Source: CIMB itrade complimentary chart (26 Dec 14)

U.S. Market outlook
After dropping to almost a one and a half month low on 16 Dec, the U.S. market reached record highs and closed at 2,089 on 26 Dec.

It was reassuring that other indices were also making new highs. Small cap stocks as measured by the Russell 2000 also reached a record on 26 Dec. Nasdaq Composite Index reached an approximate 14 year high too.

Going forward, 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.

Recently, some strategists are suggesting that the small caps may outperform in 2015 as these companies are more exposed to the domestic U.S. economy vis-à-vis their large cap multi national companies.

In addition, the performance for small cap stocks (measured by Russell 2000) has largely lagged that of the S&P500 or DJIA.

Singapore Market outlook
Two weeks ago (12 Dec), I was about 85 percent invested. Since 12 Dec, I have done a few trades and reduced my allocation slightly to around 77 percent invested.

In the next two weeks, I am going to scout for more trading ideas especially in the small to mid cap space.

I reiterate 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. For the Christmas rally, the banks have already started to move higher with DBS closing at a multi year high of $20.35 on 26 Dec (see elaboration below).

Chart alert: QT Vascular breached $0.295!
Two weeks ago on 12 Dec, I pointed out that of QT Vascular could breach $0.295 with volume expansion, it would have formed a double bottom formation with a measured eventual technical target of $0.325.

In addition, on 21 Dec, Sun, I have sent out a writeup to all clients on QT Vascular. (see link here for the writeup http://www.sharesinv.com/articles/2014/12/24/qt-vascular/)

QT Vascular breached $0.295 on 24 Dec and closed at $0.310 on 26 Dec with almost 9.0m shares transacted. This volume is larger than the 30D and 100D average volume of 4.0m and 4.4m shares, lending support to the formation of a bullish double bottom formation. Near term resistances are at $0.315 / $0.325.

A cluster of supports lies at 0.290 – 0.305.

Chart 4: QT Vascular – bullish double bottom formation formed

Source: CIMB itrade complimentary chart (26 Dec 14)

Oil and Gas Stocks
Two weeks ago on 12 Dec, I noted that the oil and gas plays were starting to stabilise.

In my 16 Dec email, amid other points, I reiterated my point on the encouraging recent price action by the oil and gas plays. Most oil and gas stocks didn’t drop much relative to the drop in oil and U.S. indices. Subsequently, on 17 Dec, most oil and gas plays rebounded, led by Keppel Corp, Sembmarine, Ezion, Pacific Radiance etc.

Furthermore, I wrote that near term potential upside may not be a lot for the oil and gas stocks as these stocks were still in a downtrend.

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: 3,354

Support 1: 3,331

Support 2: 3,307

Support 3: 3,297 – 3,298

Support 4: 3,288

Resistance 1: 3,357

Resistance 2: 3,366

Resistance 3: 3,388

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)

30 Dec, Tues: (USD) CB Consumer Confidence / S&P/CS Composite-20 HPI y/y;

31 Dec, Wed: (CNY) HSBC Final Manufacturing PMI; (USD) Unemployment Claims / Chicago PMI / Pending Home Sales m/m / Crude Oil Inventories;

1 Jan, Thurs: (CNY) Manufacturing PMI;

2 Jan, Fri: (EUR) Final Manufacturing PMI; (GBP) Manufacturing PMI; (USD) ISM Manufacturing PMI / Construction Spending m/m;

3 Jan, Sat: (CNY) Non-Manufacturing PMI;

*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
Keppel Corp  5.940 -0.03 -0.50%   
Business: [FY18 Turnover] Infrastructure (44.1%), offshore & marine (O&M) (31.4%), property (22.5%), investments (2%).

Insight: Apr-19, 1Q19 revenue rose 4.1% underpinned by high... Read More
Sembcorp Marine  1.190 -- --   
Business: Co is a leading global marine & offshore engineering group. [FY18 Turnover] rigs & floaters, repairs & upgrades, offshore platforms (98.8%), ship chartering (1%), others activities (0.2%).

Insight: May-19, 1Q19 revenue fell 31.3% to $810.6m due to ... Read More
Ezion Hldgs  -- -- --   
Business: Co develops, owns, and charters offshore assets to support the offshore energy markets. [FY17 Turnover] Liftboats (49.7%), Jack-up Rigs (39.5%), Offshore Support Logistic Services (10.8%).

Insight: Aug-18, 1H18, Co returned to the black with a net ... Read More
Pacific Radiance  -- -- --   
Business: Co is a provider of offshore support solutions with a fleet of more than 130 vessels. [FY17 Turnover] Offshore support services business (62.4%), subsea business (27.8%), complementary business (9.8%).

Insight: Nov-18, 9M18 revenue fell 5.7% to US$45.9m mainly ... Read More
DBS Group Hldgs  24.940 -0.06 -0.24%   
Business: [FY18 Total Income] Institutional banking (43.7%), consumer banking/wealth management (42.9%), treasury markets and others (13.4%).

Insight: Apr-19, 1Q19 net profit rose 9% to a record $1.7b.... Read More


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