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Markets – Possible Profit Taking In The Near Term
Perspective | 20 April 2015
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By: Ernest Lim
Articles (134) Profile

Since 23 Mar 2015, it should have been an extremely profitable time for readers, especially those who are invested in the small – mid cap sector. Below are my technical analyses and my outlook on the charts and the tabulation of the stocks’ performance since my chart alerts on 23 Mar.

Going forward, I will not be publishing this bi weekly writeup as it typically takes at least one full day (Sat / Sun) to complete. Nevertheless, I will still send brief writeups to my clients.

Technical Charts’ Outlook
For the technical charts, I will refer to the two chart analyses dated 2 Apr and *10 Apr, in case some of you have not read my brief writeup on market outlook dated 10 Apr and emailed to all on 13 Apr.

*The writeup on 10 Apr was not published on the websites due to time constraints.

S&P500 Index
Two weeks ago (2 Apr), I mentioned that S&P500’s medium term trend continued to be up as depicted by its rising 100D and 200D EMAs. However, it was trading closer to its lower band of its trading range of 2,040 – 2,119. Since 2 Apr, S&P500 moved higher to close higher at 2,102 on 10 Apr.

On 10 Apr, I wrote that given the low ADX of 12.4 on 10 Apr, it was less likely that U.S. S&P500 could stage a convincing breakout above 2,115 – 2,120. From 13 Apr – 17 Apr, S&P500 touched an intraday high of 2,112 on 15 Apr before closing weaker at 2,081 on 17 Apr.

Based on Chart 1 below, S&P500’s medium term trend continues to be up. Given the (still) low ADX of 12.5 on 17 Apr, it is likely to trade in the range of 2,040 – 2,119. A sustained break below 2,040 points to an eventual measured technical target of 1,961.

Near term supports are around 2,060 / 2,040 – 2,046. Resistances are at 2,086 / 2,115 – 2,119.

Chart 1: S&P500 traded near to its lower band of its trading range of 2,040 – 2,119

Source: CIMB itrade complimentary chart (17 Apr 2015)

Hang Seng Index
Two weeks ago (2 Apr), I wrote that Hang Seng’s eventual measured technical target of 26,100 (as mentioned on my 23 Jan writeup) remains valid should it have a sustained upside break above 25,100. It exceeded my measured technical target of 26,100 on 8 Apr and closed at 27,272 on 10 Apr.

On 10 Apr, I wrote that Hang Seng’s RSI closed at 86.8. Since 1987, RSI has only crossed 86.8 approximately four occasions with the highest around 89.9. I also mentioned that the candlestick formation at that time did not seem ultra bullish. Since 10 Apr, Hang Seng traded around the range of 27,304 – 28,032 and closed at 27,653.

Based on Chart 2 below, Hang Seng’s rally seems over extended. In my opinion, it is important to monitor whether Hang Seng will close the gap around 26,248 – 26,732. If it closes the gap, the chart outlook will turn to neutral to a tad negative.

Near term supports and resistances are at 27,735 / 26,725 and 28,032 / 28,380 respectively.

Chart 2: Hang Seng at seven year highs

Source: CIMB itrade complimentary chart (17 Apr 2015)

Straits Times Index
Two weeks ago (2 Apr), I pointed out it was likely that STI might be able to breach the resistance at around 3,459. Eventual measured technical target was around 3,560 should there be a sustained breakout above 3,459. On 10 Apr, STI closed at 3,472, above the resistance at 3,459.

On 10 Apr, I wrote that STI’s chart seemed to be on a slow and steady upwards path but near term gains might be limited to 3,500 – 3,525. Since 10 Apr, STI rose to an intraday high of 3,550 on 16 Apr before closing at 3,525 on 17 Apr.

Based on Chart 3 below, STI may seem some profit taking in the next two weeks as the recent rally seems over extended. STI’s RSI closed at 72.4. Although this is not near to their historical high, in the past one year, STI’s RSI has only crossed above 70 in a handful of sessions. In my opinion, it will be good if STI can consolidate around 3,459 level (resistance turned support level) before their next potential upmove.

See more information on STI supports and resistances below.

Chart 3: STI – reaches near my measured eventual technical target of 3,560 before weakening

Source: CIMB itrade complimentary chart (17 Apr 2015)

**FTSE ST Small Cap Index (“FSTS”)
Two weeks ago (2 Apr), I mentioned that it was likely that FSTS should head towards the key resistance level of 488 – 493 after consolidation. On 10 Apr after consolidation, it breached the resistance 488 – 493 to close at 498.1.

On 10 Apr, I wrote that RSI closed at 73.5. It was noteworthy that there have been many occasions where RSI could go above 73.5. However, without any price consolidation, it might not be able to stage a sustained breakout above 505 – 510 in the near term. Since 10 Apr, FSTS rose to an intraday high of 507.4 on 17 Apr before closing at 505.1.

Based on Chart 4, FSTS’ RSI closed at 80.0 on 17 Apr. In fact, FSTS’ RSI has risen from 17.8 on 19 Mar to close at 80.0 on 17 Apr. FSTS also faces strong layers of resistance at 505 – 510. In addition, based on candlesticks, the formation on 17 Apr seems to be a shooting star (i.e. bearish pattern). Nevertheless, I still need to see whether the shooting star will be followed by a gap down or a long red candlestick with heavy volume (bearish confirmation). In a nutshell, FSTS is likely to see some profit taking or consolidation in the next two weeks.

Supports are at 497 – 499 / 489 – 493. Resistances are at 505 – 510 / 513.

**I am still exploring the usefulness of analysing FSTS and whether it reflects actual trading opportunities or market sentiment.

Chart 4: FSTS’ hit the strong resistance area 505 – 510 without breaching it

Source: CIMB itrade complimentary chart (17 Apr 2015)

U.S. Market Outlook
U.S. 1Q earnings have unofficially started with Aloca which reported results on 8 Apr. According to Thomson Reuters, 59 S&P500 companies have reported results to date. 74.6 percent and 45.8 percent have exceeded profit and revenue expectations respectively.

With 59 S&P500 companies’ results, it is premature to assess the Corporate America yet. However, we should have a clearer picture in the next two weeks. The results period will gain traction with results’ announcements from Amazon, Boeing, General Motors and Morgan Stanley next week. As mentioned two weeks ago, corporate results are likely to be one of the most significant drivers for near term price appreciation.

The discussions between Greece and its creditors are likely to be in focus next week as there seems to be no sign of a breakthrough in talks.

In view of the above, I remain cautious on the U.S. market.

Singapore Market Outlook
Two weeks ago (2 Apr), I mentioned that I was around 59 percent invested and may increase to around 90 – 100 percent. I have been extremely busy for the past two weeks (in fact since 23 Mar) and have executed several transactions. I have also done some short selling via CIMB CFD and my net exposure has been reduced from 59 percent to around 21 percent. I probably will stay on the sidelines in the next two weeks as I am cautious on the overall market. However, I will remain vigilant and accumulate some shares on weakness (clients will be informed of such potential opportunities).

Below is a table to summarise the price performances for the stocks since 23 Mar 2015 where I have highlighted some chart alerts for your reference.

Table 2: Stocks’ price performance since their chart alerts

Source: SGX 17 Apr 2015

Just to add, on 10 Apr, I have highlighted QT Vascular’s chart. I wrote that QT Vascular closed at the neckline of $0.290 on 10 Apr with the highest volume last seen in the past six months. If it can stage a sustained breakout above $0.290 with volume, an eventual measured technical target is around $0.320.

QT Vascular met my eventual measured technical target near $0.320 (Intraday high was $0.315 on 15 Apr). It weakened subsequently after touching $0.315 to close at $0.290. Based on chart, it looks bearish if it closes below $0.285 with volume.

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: 3,525

Support 1: 3,500 – 3,504

Support 2: 3,476

Support 3: 3,469

Support 4: 3,432

Resistance 1: 3,550

Resistance 2: 3,560

Resistance 3: 3,595

Resistance 4: 3,615 – 3,622

P.S: Supports and resistances are not static levels. They may be subject to change daily.

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

19 Apr, Sun: (EUR) ECB President Draghi Speaks; (ALL) IMF Meeting Day 3;

21 Apr, Tues: (EUR) German ZEW Economic Sentiment;

22 Apr, Wed: (CNY) CB Leading Index m/m; (USD) Existing Home Sales / Crude Oil Inventories;

23 Apr, Thurs: (CNY) HSBC Flash Manufacturing PMI; (EU) France, Germany and Europe Flash Manufacturing & Services PMI; (GBP) Retail Sales m/m; (USD) Unemployment Claims / Flash Manufacturing PMI / New Home Sales;

24 Apr, Fri: (EUR) German IFO Business Climate / Eurogroup Meetings; (USD) Core Durable Goods Orders m/m / Durable Goods Orders m/m;

***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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