- Over the last 4 weeks the Straits Times Index has clawed back over 70% of the losses it suffered between July and August.
- The index has managed to break out of the converging pattern of the uptrend line and downtrend line on very high volume last week, however the reversal candlestick formation, coupled with yesterday's bearish formation on the back of high volume indicates the index will be reversing its current short-term up-trend.
- Any weakness at this juncture will find immediate support around 3,250,which is also close to the 200-day moving average. This level is also within proximity to the 38.2% Fibonacci retracement level for the rebound we are witnessing currently. Hence we anticipate strong support around this level. Further weakness will face support around 2,800 - 2,960.
- We expect global markets to take their cue from the US after tonight's FOMC rate decision meeting. Should the anticipated rate cut of 50 basis points fall through, we could witness a boost in the equity indices, which could very likely cause a push upwards for the Straits Times Index towards the resistance around the July 07 peak at 3,650. If the Feds disappoint the market by cutting the rate by 25 basis points we might very likely witness a draw down in global markets.
29 Aug 07 Key support area around 3230-3250 on STI (3257 at noon) needs to be strongly defended to prevent test of 3130-3200 Today may well be at least the 10th day of double or triple digit plunges on the STI or average daily 2-4% falls in percentage terms since the July 16 intra-day peak of 3688 with certainly more gap-downs than gap-ups. Since the Aug 17 6% intra-day mini-crash to 2962 and the U-turn to end the day at 3130, the STI has been able to hold up at around 3230-40 which is a critical support since it is around the 61.8% fibonacci mark between 3688 peak and 2962. If it breaks, there is a minor support at 3215 followed by stronger support at 3180 and 3130. The immediate gap-up early last week taking the index easily above 3300, was a strong signal that the market would rebound and thus our forecast of a move around 3240 and 3410 which marks the 61.8% and 38.2% boundaries. True enough the index dipped briefly to 3229 during the week but exceeded 3410 when it climbed all the way to 3441 last Thursday and again to 3426 this Monday. The lower high on top of Wall Streets 280-point plunge last night sent the STI back to near 3240 when it fell to 3249.96 low this morning, creating another gap-down from yesterdays 3343 close. Traders who have profited from blue chips would find the going tougher now as there is still 3 weeks away to the next FOMC meeting on Sept 18 and Wall Street could be choppy as the market puts pressure for aFed funds rate cut. But it is also possible that the Fed could pump in more liquidity into the system to stabilise the market and reduce pressures for a rate cut. The Fed is in a dilemma as its inflationary concerns remain top priority and even if it cuts rates at this coming meeting, this does not mean the pressure is gone with Wall Street satisfied and the current volatility ends. In fact there could be fresh rounds of selling later on as the pampered market would like to see further rate cuts. As downward volatility resumes, traders would have to be extra-nimble when trading the 15 STI blue chips on our list. We have missed out on Cosco, a good trading stock and we add it to our list. We highlight 7 out of the 16 blue chips today. Cosco ($4.74) It rebounded fiercely from Aug 17 intra-day low of $3.48 to high of $5.20 on Monday. Support is strong at $4.50-60 ($4.62 low today). Buy on any weakness for a rebound back to $5-$5.20 DBS ($19.10) nearly visited its $18.70 Aug 17 low, touching $18.90. If $18.70 breaks next support at $18.10-20. Rebounded to $21.40 which will be tougher to repeat this round as resistance will be around $20.50-80. Extra care needed as the stock a key barometer of banking sector seems the weakest among the 3 banks. NOL ($4.48) Touched $4.48 well above $3.70 Aug 17 low when it closed at $4. Support at $4.20-24, which should hold up in short term. Buy around $4.40 for a trade up to $4.80-90. Rebound high was $5.05. SembMarine ($5.40) Touched $5.20 low well above $4.54 Aug 17 low underpinned by 2 for 5 bonus issueissue. Rebounded to $5.75 in past 2 days which should be seen again. Buy at $5.15-20. SGX ($9.05) Touched $9.05 well above $7.65 Aug 17 low when it ended at $8.30. Rallied to as high as $9.70 on Monday.Support at $8.70-90. Buy on weakness for rebound to $9.50-60. KepCorp ($12.20) - $12 low today vs $10.10 on Aug 17 when it closed at $11. Reached $12.90 last week and on Monday. .Support at $11.50-70. 70. Buy on weakness as it can rebound back to $12.80-90. SingTel ($3.50) Amazingly it hit new 2007 high of $3.72 on Monday amid the current market chaos, giving a helping hand to the STI. The Aug 17 low of $3.16 was right on at our support guidance and it finished at $3.40 also at our higher support target. It hit $3.44 low today, a good support and buying towards this $3.40-44 support is alright as likely rebound back to $3.62-66 and later to $3.70-72.
20 Aug 07 - OCBC Post mid-year sale! - The Straits Times Index (STI) sliced through all our forecasted support levels and hit a low of 2,962.01 on 17th August and reversed thereafter in late afternoon, closing at 3,130.71. The plunge downwards has broken through the medium-term uptrend line, this might not bode well for the STI
over the next few weeks.
- However, given the extent of the correction, we can expect a rebound in the week ahead, which has been signaled by 2 indicators. The first being the Doji candlestick formation on the 17th of August that was on the back of very high volume. The second is that the short-term RSI and stochastic indicators are trading within oversold regions.
- Elliot wave counts indicate the STI is currently undergoing wave 4 of a 5-wave up cycle.
- Our forecasted rebound should face strong resistance around the levels of 3,250 - 3,350. A break above this zone would result in the index testing the medium-term uptrend line. This would be a crucial gauge of the market strength going forward. Should the STI break above the trend line, we can expect a test of support on that up-trend line. The support of that trend line would need to hold to signal that the STI would climb higher.
- A failure to break through the trend line could result in the index pulling back towards our support level at 2,800.
