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Post Info TOPIC: STI
KK


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STI - Frasers
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30 Jul 07

This mornings rebound after 6.6% pullback could signal initial attempt to decouple from Wall Street with China pointing the way

Chinas non-reaction to Wall Streets plunge should cushion Asian market falls and signal that regional markets including Singapore may not suffer a steeper fall of up to 8-10% for the time being. 

Chinas stock market has largely ignored the Dows plunge last week, with major indices gaining while the rest of the world were mostly down. 

This sign of decoupling unlike at end-Feb/March when Wall Street reacted adversely, plunging over 450 points on the day Shanghai plunged 9% could see a repeat of market behaviour then when the STI rebounded quickly from its 11.6% in a week with a new high seen in a month. 

In coming days the local market my remain touchy to Wall Street even as it made a spirited rebound this morning. The index has rebounded above the 3500 psychological level as we had talked about in latest  market view but it is too early to call for a bottom at Fridays 3444 low. 

If Wall Street continues to fall this week, breaking 13000 and next support around 12800, the STI is likely to fall back to 3400, which means an 8% pullback from 3688. But if the Dow rebounds to 13600-700, then the STI should rally to 3550-80, covering more of last Fridays breakdown gap between 3576 to 3504. 

We had warned of a pending pullback in the latest two market views with the first report on July 18 calling for a fall to 3580 from the then 3688 record high on July 16 but felt it was still possible for the STI to test 3700 in August. The STI fell to 3578 on July 18 but rebounded to 3669 on July 24. 

The next report on July 25 after Wall Streets overnight plunge exceeding 200 points warned of a significant market pullback in the months ahead and that the STI could see a 8-12% fall instead of the usual 3-5% pullbacks seen in recent months. A 10% fall could see the STI back to around its first major high of 3316 early this year.

So far the index has dropped 244 points or 6.6% from 3688 to 3444 last Friday. The end Feb/early March correction was more severe, down 385 point or 11.6% as the sub-prime woes had just started. It is well known now and its bearish impact on Singapore should be less. 

The factors causing the worldwide market correction then are about the same that caused Wall Streets latest scare mainly the sub-prime mortgage woes. There is certainly a worsening of this issue with the US housing market in depression and fears that it can only get worse with repercussions on companies earnings and GDP growth. 

Thus Wall Street is expected to remain unsettled as the ramifications of the housing crisis can drag for a long time. This is proven by the resurfacing of the sub-prime issue after a few months. A choppy Wall Street remains a drag on Singapore as the US remains our biggest export market. 

But strong regional fundamentals will re-assert themselves and bring back investors to regional markets. Already we have seen some choice sectors led by O&M, construction/building materials, commodities and tourism sectors remaining resilient. 

Property counters have already plunged with Capitaland and CityDev down about 20% from their recent all-time peaks and are taking the rebound lead. They should help in cushioning the STIs fall together with the other bullish sectors.

The reporting season is going full swing now and while overall sentiment is still sensitive to Wall Street, strong earnings reports from such blue chips as the banks, SIA, SingTel, ST Eng, SembCorp and Venture should also support the market as earnings upgrades may continue to be justified despite the market fall.

A minor rally cannot be ruled out next month with the STI testing 3550-3600 but we are unlikely to see the 3688 high being tested until year-end. Prospects for the following months from September to November remain uncertain at this stage. But we expect 3300-50 to be a strong support during those months.

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KK


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25 Jul 07

Wall Street may signal world stock markets to undergo a more substantial pullback in coming months

As we enter the more unpredictable August-November period, which in the past had seen momentous events resulting in sharp market falls, investors are likely to be more cautious going forward. 

After all, the ST Index has risen to such record heights without much of a correction since mid-2006, if the week-long end-Feb/early March 11.6% plunge can be considered an abberation as a swift recovery to new highs took place in just after a month.

Thus fewer investors can be expected to ride out the next downturn even though record shows the market rallying forcefully after pullbacks or corrections lasting at most several weeks.

This is to be expected as most bullish factors are already well-known but the unknown unknowns as the PM put it recently are still lurking in the background. 

So far market uncertainties have taken a back seat as interest rates remain benign, US housing woes and sub-prime mortgage problems appear largely in check, oil price rise seems orderly and the geo-political front is generally quiet. 

On the other hand bullish earnings expectations and upgrades continue unabated on top of higher economic growth forecasts with the latest economists saying Singapore can grow at near 8% pace for next several years. 

Moreover, attractive dividend payouts continue to prevent investors from selling blue chips with several of them such as SIA and SingTel due to make payments next month. Conglomerates, property giant and banks too will be announcing interim dividends soon and this will continue to underpin the market.

In the light of all these bullish factors and mildly bearish leads such as the Dows overnight fall, it may be hard to paint a scenario where a correction of 15 to 20% taking place in coming months.

But it is also unlikely that the market can just repeat its series of minor short-lived 3-5% pullbacks, which had been taking place in the past few months.

An 8-12% pullback occurring sometime between end-August and ending around mid-November is a more likely scenario prior to a year-end/new year rally. The correction may be more severe if nasty surprises, which the market had been spared since the Sept 11 2001 attacks, rear their ugly heads again. 

Before 2001, the late August to mid-November period had been notorious for such events as the Oct 19 1987 Black Monday, Wall Streets mini-crash in 1989, the Russian coup, the Iraqi invasion of Kuwait in 1990 and the worsening of the Asian crisis of 1997-98. 

In the event the Dow finds it hard to convincingly clear 14,000 and instead goes into a new minor downtrend in coming weeks, the STI may not be able to easily move to 3700-3750 during the reporting season and amid the National Day celebrations.

If it continues to struggle within 3600-3670 for an extended period till around mid-August, investors are likely to sell once blue chips go ex-dividend. 

We may to adjust the broad targeted 3450-3750 trading range for coming months once it becomes clearer that the index cannot sustain its rise the latest 3688 peak and beyond the borders of 3700 as August progresses. 

A 10% pullback from 3700 can take the STI back to 3330, near its first major peak of 3316 this year.  

This fall is unlikely to come suddenly but should be spread out over several weeks. Technical rebounds should take place when psychological support around 3600, 3500 and 3400 are tested as the market undergoes its much needed breather in September to mid-November to prepare for a year-end/new year rally to break 3700-3750 and attempt new heights.

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KK


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16 Jul 07

Multiple warning signs

- The Straits Times Index (STI) has exhibited a fair bit of volatility over the last 3 months, as seen from the bounce within the up-trend channel on the daily price chart.

- Last week's rise has also taken the STI close to the upper band of the channel and past our immediate resistance level at 3,650 (Refer to Chart 1). This places the index in a dangerous zone, as we had highlighted in our earlier reports.

- 2 quantitative factors warn of a possible correction ahead. Firstly, the STI has never rallied for more than 2.5 years without a significant correction, and it has been 3 years and 4 months since a significant correction. Secondly, the STI currently is approximately +157% above the 200-week moving average, and over the last 26 years, deviations of +/- 157-168% away from that have resulted in significant corrections. (Refer to report dated 07 June 2007).

- Apart from these quantitative signs that have been warning us since May 07, we observed that the technical indicators - RSI, stochastics and MACD - have all been exhibiting negative divergences since May 07 (Refer to Chart 2).

- The multiple warning signs at this juncture could point to an impending correction for the STI as we move into results season for 2Q07. We set the immediate support level at 3,350 and final support at 2,800. Immediate resistance at 3,650 was broken on 13 July, hence subsequent resistance set at 3,870

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KK


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10 Jul 07

Strong quarterly GDP numbers and likely upward revision in 2007 official growth forecast should push up STIs trading range to higher end of 3450-3750 band in coming weeks

Expectations that the 2q07 preliminary GDP Q-on-Q annualised growth would be much better than the expected 8% ballpark area - it turned up to be 12.8% - with positive implications on corporate earnings growth led to a breakout on heavy trading yesterday. 

The STI gapped up at yesterdays opening from Fridays 3562 close to 3583 and went on to stomp 1.82% higher finishing the day at 3627, near 3629 high.

This morning it gapped a bit further opening at 3640, hitting a brief intra-day record high of 3653, above the previous intra-day record of 3652 on June 20.

If GDP surprises continue to be the order of the day in the next 2 reporting times ie around Oct 10 and Jan 10 next year, the index may well hit 4000 by early 2008 especially if the official growth forecasts have to be upped again and again. 

We can expect the next substantive revision in the PMs National Day speech on Aug 9 when the complete 2q numbers are all in, probably from the current 5-7% to 6-8%. It may not even be surprising that by the time the PM makes his annual new year address on Jan 1 next year that actual growth for 2007 could exceed 8%. 

That of course depends on the state of the world economy especially the US with no nasty surprises on inflation, interest rates, state of US housing sector as well as geopolitics, terrorism, oil prices and health scares. 

However looking at the increased frequency of minor scares emanating from China where daily plunges of 5% or higher have become common and recent ministerial warnings of unknown unknowns from the PM right down to his ministers, volatility on the downside can be as sharp as the upside.

Yesterdays 1.82% jump should not make players forget that there had been 2 sharp falls each in May and June and one in April. Then there was the unforgettable 11.6% one-week plunge at end-Feb/early March which is likely to be seen again sometime before year-end. 

If the first half with its amazing 720-point range from 2932 to 3652 can witness frequent sharp weekly downswings ranging from 3.2% to 4.6% ie anywhere between 114 to 167 points, then it would be natural to expect no less volatility in the second half more so now with the STI probing new peaks.

However thanks to yesterdays breakout, the index is likely to see higher support levels, the latest being 3485 after the 3400-20 area had held up well during the May pullback episodes. 

Last weeks 3562 close and yesterdays 3583 low would be new support which may well be tested once the STI breaks the 3650 resistance and move on to 3700-3750. This is based on the 3.2 to 4.6% weekly pullbacks that had taken place in recent months. 

Nevertheless the 3700-50 area could be tested in the coming month or so during the reporting season and the National Day festivities culminating in the PMs rally speech expected on Aug 19. 

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7 Jun 07

Calm before the storm?

- We cautioned investors a month ago (9th May) on being over-exposed to equities after the STI crossed our mid-year technical target of 3,250. As the market heads into the school holiday period, we anticipate a fairly dull performance for the STI. However, we advise long-term investors not to take this lull period as a positive sign to re-enter, although trading opportunities still exist for short-to-medium term traders.

- Why are we cautious about the STI's performance in the next 7 months? This is derived from 3 quantitative observations, with the possibility of the STI touching 2,800 if the correction reaches its full extent. Meanwhile, immediate resistance for the STI is maintained at 3,650 and immediate support is set at 3,250 (refer to chart 2).- The first quantitative observation was based on the extent the current rally has gone on without a correction exceeding 15%. Drawing data from over the last 26 years, we observed the STI has never rallied for more than 2.5 years without a significant correction that exceeds 15%. The last significant correction that exceeded 15% occurred between 2002-2003 when the STI suffered a loss of approximately 35%. It has been 3 years and 3 months since that last significant correction (refer to table 1).- The second quantitative observation is based on the degree the STI deviates from its 200-week moving average before it rallies or corrects significantly. Based on historical evidence over the last 2 decades, the mean deviation was approximately +/-168%, and when we exclude the -247% anomaly in the late 90's, the mean deviation was approximately +/-157%. The index currently trades at approximately 156% away from the 200-week moving average. Should the index manages to stretch towards the higher band of +/- 168% of the mean deviation, it would place the STI at approximately 3,800, which is about 240 points away. This indicates that there is a possibility of a correction within this index range (refer to table 2 and chart 1).- The third quantitative observation is based on the top 12 index members that have formed new 52-week highs recently. We noticed that out of the top 12 index members that collectively made up 60% of the index weight, only 4 counters had formed new 52-week highs in the last 1 month. This slowdown could be an added early warning signal that the uptrend momentum is slowing (refer to table 3)

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KK


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25 May 07

No major correction likely in coming 1-2 months with the STI falls confined to around 5% (3380-3400) and new highs still on the cards later this year

On the surface the confluence of factors that have suddenly surfaced appear bearish for stock markets. First there is the triple whammy of warnings of a dramatic Chinese market correction by such diverse figures as Li Ka Shing, Alan Greenspan and the OECD. 

As Chinese government measures to cool the booming stock market have no effect especially on retail players who continue to pour money, fund managers may soon begin to take heed of these warnings. And it may not just be China but worldwide equities too could be affected as rising US bond yields force liquidity-laden institutions to look at bonds as an alternative asset class to equities. 

On top of the two-week surge in bond yields, prompted by unexpected signs of growth in the economy, the latest US government reports showed new home sales climbing the most in April since 1993. Durable-goods orders also gained for a third month, evidence the two weakest parts of the economy are growing. Yields on 10-year Treasuries traded near the highest in almost four months.

For some time investor psychology has been tuned into worrying about a possible hard landing for the US economy and was hoping the Fed would cut interest rates later this year to avoid such a scenario. 

Even the Feds stern language on inflation has hardly been heeded as the Dow climbed to consecutive record highs with hopes remaining high that rates would at least not go up. Thus it would be a rude shock if bond yields continue to rise amid signs of a strengthening US economy as the Fed may be forced to raise rates before year-end if inflation worsens. 

Wall Street is unlikely to tolerate a rate hike this year even if its just 25 or 50 basis points as  bullish investor psychology will be badly dented. This will have negative impact on equities worldwide including China and Singapore.

But on the other hand, investors have prepared themselves for a market consolidation as calls for such a scenario in the mid-year months have come loud and clear. 

We have also called for a cooling off after the reporting season and our temporary STI target of 3550 made on May 15 when the STI moved between 3456 and 3498 was slightly exceeded when the index reached 3559 just 2 days ago. 

A big correction usually comes as a surprise with most analysts bullish but this time, ample warnings of a market consolidation have been sounded with investors and traders heeding advice to trim speculative positions and take profits on blue chips.

This applies not only locally but worldwide as well. Thus a consolidation  with the STI pulling back around 5% in June-July (around 3380-3400) should be healthy for the market and set the stage for a pre-year end rally in August-September taking the STI  above the 3559 high to 3600-3650. 

Depending on leads from Wall Street and China, the market may resume its rally in November-December to the 3700 or possibly 3750 after another short consolidation around October.

But there is no guarantee that another large scale correction of the magnitude of end-Feb-Marchs 11.6% fall or the mid-2006 14.6% plunge will not take place later this year. 

Many things can happen in 3-6 months time especially on the geo-political front in the MidEast/Gulf area with rising oil prices a signal to investors to take care.

While the huge liquidity flows into Asian equities front are unlikely to dry up because of rising US bond yields any sudden worsening on the US-Iran front will be bad for equities. But we do not expect a nasty geopolitical surprise in the next 1-3 months.

Meanwhile the STI has already lost 2.2% or 80 points from 3559 on Wednesday to 3479 this morning.  First support is around 3450 (Aprils high 3453) with this months 3381 low providing stronger support.

In the event the pullback exceeds 5%, the STI should find support at around 3350 followed by the first major high of 3316 (which will be down 6.8% from 3559 peak) just before the end-Feb/March correction that took the index to years 2931 low.


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KK


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15 May 07

ST Index likely to consolidate in next 1-2 months to stretch out its upside potential for next 7 months following the near 600 point movement so far between 2931 and 3523

It would be a big feat if the STI could improve on its 713 point movement last year in the next 1-2 months (2278-2991), having gained 592 points from the March low of 2931 to 3523 last week. It is possible there will be a bit more upside in the coming few days probably to around 3550 before the market takes a mid-year break.

Although it should not be much of a surprise if the rally continues in June-July taking the STI to around 3650 (to match 2006s movement) given the recent record volumes and earnings surprises (first quarter earnings exceeding 25% compared to market consensus of around 15% for 2007), it would be better if new peaks are recorded towards year-end to set up the stage for another bull run in 2008 taking the index to the 4000 level.

While a consolidation is preferable, the market has not shown a preference for such behaviour, given the fast pace of developments on the economic, earnings, property fronts as well as M&A activities. Volatility appears to be more effective in correcting overbought conditions and smoothing out speculative froth.

Fortunately some blue chips mainly the slow performers eg SPH, STE, SingTel, CSM appear to be more prone to consolidation and this has balanced out the volatility in index and non-index movers. This is a healthy trend that should help the STI to slow down its climb to new highs as well as cap the downside.

The 3400 level has held up after 2 tests in the past week or so, first at 3409 and then 3417 this week and we can expect last Mondays intraday high of 3523 to be tested, to give a rousing send-off to the spectacular first quarter earnings season.

With hefty dividends and capital return to be dished out by blue chips in July-August, investors will be reluctant to sell and buy back again before the ex-dates and this should limit the downside in June-July when the market is likely to consolidate.

With downside around 3380-3400 and the upside around 3650 in coming months, the 250 or so point range should still be attractive although trading gains may be more difficult to make compared to the first 4 1/2 months of this year when the STI moved 592 points between 2931 and 3523.

Technical indicators meantime show no signs of any significant correction in the works with the moving averages rising well with potential for golden crosses going forward while MACDs, RSIs and momentum/stochastics indicators all in positive shape.

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KK


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9-May-07

Where to now?

- The STI broke through the resistance level at 3,500 momentarily before it pulled back over the last 2 trading days.

- We have observed more stocks creating new 52-week highs over the last 2 weeks, which have increased from 9 in week ending 27th April to 12 in week ending 4th May. If this momentum continues, we could witness the index edge higher in the weeks ahead.

- Elliot wave counts indicate the STI is currently in the midst of its 5th smaller wave in a bigger 3rd wave, known as 3-V. The 5th wave will typically see a steep ascension with multiple steep pullbacks within the short time span.

- The recent weakness over the last 2 days arose as the index hit the 123.6% Fibonacci projection level. If the STI is to retest and break above this resistance level, it may head towards the next resistance at 3,650, which is the 138.2% Fibonacci projection level.

- We are fairly positive in the near-term if the index breaks above the 123.6% Fibonacci projection level. However, we anticipate a more severe correction before end 2007 and are cautious in our medium term outlook. The immediate support level is set at 3,250 and the year-end technical target remains at 2,800.

Quantitative Analysis

- We did a quantitative study on the index performance against the 200-week moving average from 1980 to date. This is to ascertain the percentage deviation of the index from the 200-week moving average line before it reverses its trend.

- Based on the data over the last 26 years, the STI experienced 4 major rallies and 3 corrections. We are currently in the midst of the 4th significant rally. Through these rallies and corrections, the STI deviate a significant percentage away from the 200-week moving average before it reversed. The smallest percentage deviation was approximately 141% and the largest percentage deviation was approximately 247%. The 247% deviation was an anomaly that occurred from 1997 to 1998.

- Based on the past 7 deviations of the STI from the 200-week moving average, the mean value was approximately 168%. If we removed the anomaly in 1997-98, the mean value was approximately 157%.

- The STI now shows 156% deviation from the 200-week moving average, which lies very close to the mean. Hence, we urge investors to invest with caution and shorten their equity investment timeframe exposures.

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20-Apr-2007

We caution against being overly optimistic

- The Straits Times Index (STI) has pulled back since our last report on 11 April. The STI subsequently peaked at 3452.84. This represents a loss of approximately 4.5% over the last week.

- The bearish candlestick formations over the last 2 days, which were accompanied by the high volume on the sell down, indicate that the STI will head lower towards our immediate support at 3,250. We expect the STI to consolidate at around the 3,200 - 3,250 levels.

- Short-term stochastic indicator is nearing the oversold region, suggesting that the STI has a little more room to fall before recovering to test our resistance at 3,500.

- As per our earlier analysis done on 2 April, we observed a strong inverse correlation between the JPYUSD cross and the STI. The JPYUSD spot rate began to move up on 17 April after consolidating around 0.8300 for about a week. The confirmation break upwards by the JPYUSD spot coincided with the STI pulling back over the last 2 days. But any weakness in the JPYUSD rebound may result in the STI bottoming out at this juncture.

- We maintain our medium-term view of a year-end target of 2,800 for the STI, after which, we can expect the commencement of the 5th wave in our 5-wave bull cycle.

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11-Apr-2007

What goes up must come down

- The Straits Times Index (STI) has breached our mid-year target of 3,350 on 9th April. Despite such a stellar performance in a short period of time, we forecast this euphoria is nearing its end based on 2 crucial factors.

- The first is the fast and steep rate of the ascension which allowed the STI to clear its previous peak at 3,316.22 within 4 weeks of a rebound, compared to the May 06 sell off which took 4 months for the STI to clear the peak at 2,666.33. The STI recovered approximately 388 and 385 points after the May 06 and Feb 07 sell-offs respectively.

- This behavior is typical of a 5th impulse wave formation within a bull cycle. Elliot wave counts place the STI in the midst of a 3-5 wave formation, which indicates that it is nearing the end of the 3rd impulse wave formation. This means a significant correction from hereon could place the STI within a 4th wave of a 5-wave bull cycle which commenced in Jun 06.

- The second factor is the volume comparison of the week the STI hit a new high of 3,346.84, where the market recorded a weekly traded volume of approximately 1.28 billion units compared to the weekly traded volume of 2.51 billion units for the week ending 2nd Mar 07 when the STI hit a high of 3,316.22.

- These 2 significant factors are clear signs of caution that investors should heed. As the STI has met our mid-year target, we recommend selling into strength and remain nimble on any positions taken at this stage of the rally. While we could witness a little more appreciation in the near term, we fear that the rally may not be sustainable for very much longer.

- Our correctional target for the STI is set at 2,800, after which we can expect the commencement of the 5th wave in our 5-wave bull cycle. Immediate support is at 3,250 and medium-term support sits at 2,700 -2,800. Resistance set at 3,500.

-- Edited by KK at 20:40, 2007-04-11

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RE: STI
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Extracted from Today Newspaper:

Technology slump and lower drug exports may be a drag on GDP: Analysts
Christie Loh
christie@mediacorp.com.sg

After a spectacular 2006, economic growth in the first three months of this year may be a bit of a letdown, said analysts.

Due in part to a slump in the global technology industry, the first quarter could have expanded by 5.4 per cent, according to the average forecast of eight economists polled by Dow Jones Newswires. This would be much slower than the previous quarter's 6.6 per cent.

Taking the most bearish stance among the respondents was United Overseas Bank, which bet on growth of 4.1 per cent.

The accuracy of these predictions will be revealed at 8am tomorrow, when the Ministry of Trade and Industry releases the preliminary gross domestic product (GDP) based on data for January and February.

GDP is a measure of the total goods and services produced within a country over a specific time period..Between January and March, business activity probably did not match the bustle of the quarter ended December, which had surged by 10.6 per cent.

"Non-oil domestic exports (Nodx) and the industrial production index have been quite soft. The main culprit is the weakness in electronics demand," DBS Group economist Irvin Seah, who is predicting that the first quarter grew by 4.8 per cent, told Today.

In February, sharply lower orders for electronics led Nodx heavily reliant on the IT industry to post its biggest fall in four years. The cyclical tech sector has been suffering a double whammy for several months now: Price wars plus weak demand for goods such as computer chips especially from the United States. .What lifted growth in the first quarter was investment spending, particularly on transport equipment, HSBC economist Robert Prior-Wandesforde told Dow Jones.

"Overall growth is becoming less sensitive to the tech cycle, given the emergence of several other growth drivers," said Citigroup economist Chua Hak Bin. .He said that high-end property, pharmaceuticals, and marine transport were some of the sectors that have continued holding up.

"We remain fairly confident that the economy remains on a firm footing despite concerns about a tech slump and a US downturn," Dr Chua said in a report dated April 2, estimating first-quarter expansion of 6 per cent.

In the week leading up to the preliminary GDP figures, the Singapore dollar hit a nine-and-a-half-year high against the US dollar, on speculation that the central bank will maintain its policy to allow a stronger currency.

"The Singapore dollar is well within the comfortable trading fluctuation band of the central bank so there's no reason why they should be extremely concerned about it," ABN Amro Bank economist Irene Cheung told Bloomberg. "They will probably allow fundamental flows to underpin the currency."

The twice-yearly monetary policy report is due tomorrow, too.

-- Edited by tfwee at 12:30, 2007-04-09

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KK


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4-Apr-2007

Heading towards mid-year target of 3,350

- Aided by the continued price ascension and the gradual rise in traded volume of the index heavyweights over the past few trading days, we expect to witness the Straits Times Index (STI) rise above its Feb 07 high of 3,316.22.

- The other factor that seems to be contributing to optimism at this stage is the pull back in the Japanese Yen yesterday, which recently displayed a close negative correlation to the STI that we had highlighted in our previous report (2 April 07). The JPY/USD spot rate on 3 April displayed a clear weakness in the Yen as it fell below the 200-day moving average. Our proprietary sentiment index is also indicating there is sustained pessimism towards the JPY/USD in the near-term, which would result in the Yen trading lower.

- We anticipate a strong support around the 50-day moving average at 0.8400. This would be the critical level for the JPY/USD spot as it could act as the point of reversal. This reversal should it unfold, could very likely cause a pull back in the STI. However in the near-term, the JPY/USD weakness remains positive for equities.

- Thus should the above two factors continue (i.e. rising volumes on the back of price ascensions of the index member stocks and weakening JPY/USD), the STI will surge higher towards our mid-year technical target of 3,350. Immediate support set at 3,050 and medium-term support maintained at 2,700 - 2800

-- Edited by KK at 22:52, 2007-04-04

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3-Apr-2007

Challenging and unpredictable second quarter expected as market set to repeat big quarterly swings seen earlier even as STI set to record new peaks around 3400-3500

Investors and traders can expect the current quarter to be both exciting and unpredictable even more than the volatility seen in the corresponding 3-month periods in 2004 and 2006 which saw the only 2 quarterly losses in the 4 year old bull market. 

Some interesting lessons for this quarter can be learnt from the market behaviour during that periods as well as the quarter just ended although the movements in Jan-March 2007 appeared quite different.

Significantly the ST Index reached  a new peak of 3316 at end-February, plunged 11.6% and then recovered to near the peak ending the first quarter at 3231 last Friday. Today it is fast closing in on 3300.

Last year the index chalked up a string of new quarterly highs for nearly 2 years after the 2q04 loss and continued to rally early in 2q06, peaking at 2666 on May 8 before plummeting. 

It also ended 2q06 at a loss.  These were the only 2 quarterly losses since the bull market began in March 2003. Other than that the STI did not see major plunges apart from Sep-Oct 2005 when it corrected 8.8% but still showed strong quarterly finishes.  

There is a major difference in that the recent plunge took place towards end of 1q07 but the STI recovered swiftly making a strong 8.2% or 247 point gain for the quarter to 3231 from 2986 at end-2006. In 2004, after the STI failed to convincingly clear the 1900 resistance level after several attempts, it took a plunge to 1690 in May, down 11.6% from then peak of 1913 in January that year.

Coincidentally the percentage drop is similar to the latest plunge from 3316 to 2932. In 2q06 the plunge was bigger at 14.6% and for the first time it was from uncharted territory after the STI beat its old January 2000 peak of 2583, although the new high of 2666 was not much higher, suggesting investor jitters in unfamiliar waters. 

As confidence returned justified by the continuing strong broad fundamentals, the STI surged 45.6% from mid-2006 low of 2278 to as high as 3316 at end-February. These same fundamentals led by strong economic and earnings growth prospects, benign interest rates, recovering property market and increasingly hectic M& activities, also explained why the recent correction was swift.

It was kind of a self fulfilling prophecy as calls for a market consolidation had come in thick and fast prior to the 3316 peak and the Shanghai mini-crash and yen carry trades provided the excuse followed by the US sub-prime mortgage crisis. 

The current surge back to near record highs the STI is getting closer to 3300 by the minute today - is proof that there has been no lasting damage to investor confidence. The bull market environment remains very much intact with potential to reach to new heights. Even if there more scares this quarter, plunges should continue to be short-lived with the STIs medium to long term trend unlikely to be jeopardised.

Nevertheless judging from the hefty quarterly movements in the last 2 quarters swings of 579 points and 384 points respectively with the latest quarter at par with the 388- point swing in 2q06, we can expect this quarter to be just as challenging.

The possibility of testing 3500-3600 this quarter cannot be ruled as the 3 recent quarterly peaks - 2666, 2991 and 3316 are 325 points apart.  If yesterdays intra-day low of 3231 can hold as quarterly low, which is unlikely, we should see 3550. But even if the index falls back to 3100, 3400-3500 should still be within reach as we can expect volatility to remain high and a minimum 300-400 point swing will be line with the last 2 quarterly movements.

-- Edited by KK at 20:37, 2007-04-03

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2-Apr-2007

Resilience or disregard?

- The Straits Times Index (STI) has progressed gingerly past the resistance level we had set at 3,220. It has also sneaked passed the 10 and 50-day moving averages over the last 7 trading days.

- We observed that the upwards trending 10-day moving average has cut above the 50-day moving average, signaling more near-term bullishness. At this stage, should the markets remain status quo without any systematic shocks, we will witness a likely testing of STI's recent high of 3,310.44.

- Out of the top 10 index members ranked by weight, only CapitaLand (5.03% weight) has surpassed its Feb 07 high and OCBC (9.32% weight) has tested its Feb 07 high but failed to break it. Should we witness the remaining 8 members move closer towards their Feb 07 high, the STI will break past 3,310.44.

- At this juncture, we face 2 glaring risk factors. The first being that result season is coming and any earnings disappointment for the top weighted stocks could result in a fall out in the market. The second rests on the Japanese Yen carry trade issue. We observed over the past few weeks, advancements in the Yen against the USD have resulted in the market pulling back. Thus a significant spike in the Yen could result in significant pull back in the market.

- Immediate support set at the 100-day moving average and medium-term support maintained around 2,700 - 2,800. Immediate resistance set at 3,310.44

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28-Mar-2007

More orderly pullbacks likely than sudden plunges on increasing investor confidence STI has bottomed out for next few months

The markets swift rebound to just 2.3% (3240 high yesterday) below the 3316 all time STI peak after a scary 11.6% plunge and all this taking taking place within the space of one month has reinforced earlier widespread belief the index has quite a long way to go before a final peak.

It is thus likely that the 3300 level will be seen first rather than a plunge back to 3100 or 3000 as higher support levels have been established. The sharp intra-week rebound earlier this month when the STI hit its floor of 2932 only to end the week over 200 points higher at 3144, near its weeks 3154 high is a classic reminder of the markets strong fundamentals.

Liquidity flows from major new sources led by Middle East funds are unlikely to dry up as they view US economic problems especially related to the housing sector as an opportunity to buy regional equities specifically Singapore and Malaysian stocks whenever these markets drop in tandem with Wall Streets falls.

The bullish outlook for Sing and RM adds to the attractiveness of holding on to their local stock portfolios with market weakness offering opportunities to buy more. Higher oil prices mean more money to oil rich Gulf states which is positive for local equities.

Malaysias growing attractiveness to foreign funds is not at Singapores expense as many funds are now treating the two markets as largely one as both countries benefit from each others economic and earnings growth prospects with more cross-country investments expected following GILs winning bid for Sentosa IR.

The coming ministerial retreat between the Spore and Malaysian PMs and their senior ministers should result in greater co-operation that will benefit the economies and stock markets and attract more foreign investments to both countries.

Meanwhile, Irans arrest of 15 British navalmen should not lead to open conflict as the US has dropped hints of willing to talk with Iran on the Iraqi situation. Their release can be expected soon as both Iran and the UK have not shown belligerence in the situation.

Given the US Senate latest resolution fixing the start of US Iraqi troop withdrawal from March 2008, even if vetoed by President Bush as is likely, should in the end lead to talks rather than open conflict and an attack on Iran.

Thus the MidEast situation is unlikely to worsen and oil prices should settle back to below $60 soon, after spiking to $68 today on rumours of a flare up in the Gulf between Iran and US but fell back to $64 after the US denied any skirmish has taken place.

On the home front, M&A activities are likely to spread to other sectors of the economy from the tech/ engineering sectors possibly to the offshore, property, consumer, telco, and even financial sectors. Such exciting events should buoy investor sentiments this year and could take the STI to 3400--3500 and possibly peaking around nearer to 3600.

The hot property climate is expected to spread to the suburbs first in the east and west coast, where physical prices which have risen moderately to $550-$650 psf from lows of $400-$500, yet are still some 25-30% below their 1996 peaks of $800-$900.

The impending salary revisions for civil servants who form the single largest pool of workers could lead to higher demand for mid-segment private property.

However the domestic bullish situation does not mean that Singapore can be insulated from global bearish developments. We have already seen the recent plunge in sympathy with the Dow and we can expect some more problems of the likes of the sub-prime fiasco emanating from the US in coming months.

The STI can be expected to be volatile again on such bearish events and a steady rise to beat 3300 and move to 3400-3500 should be more orderly to prevent a repeat of the hard market landing we saw early this month.

However it is unlikely that we wont see any more yen carry trades and sub-prime woes kind of events breaking out sometime in the second and third quarters. We can only hope they will be less serious so that the STI can hold up above 3000-3100 for rest of year.

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20-Mar-2007

Cautious optimism returning to market as possible third bearish development after yen carry trades and US subprime mortgage turmoil unlikely to appear so soon

While keeping on their toes for another possible bearish development in the future, players are regaining their posture believing that the market will be spared another nasty surprise although the main causes of the recent two rounds of plunges came hot on the heels of one another.

Surprisingly the US housing woes, logically a more serious development given the potentially serious consequences on the US and world economy than the yen trades caused a smaller STI plunge than the latter.

This may have reassured investors that the market has proven its resilient and the next bearish development, if any, would not see the Dow and STI plunging more than the first 2 rounds. The STI dived 385 points or 11.6% in a week from 3316 to 2932 in the wake of the Shanghai-led world market selldown but lost a much muted 142 points or 4.5% in 2 days from 3191 to 3049 on the subprime mortgage problems

Moreover the first rebound was beyond belief as the index recouped 259 points or 67.4% of its 384 point 76, coming close to 3200 at 3191. Having recovered to beyond the 61.8% fibonacci upward retracement  mark (at 3169) this is believed to eventually pave the way for a full recovery to 3316.

But the subprime woes startled the market putting paid to hopes of a complete recovery. Although last midweek plunge was much smaller, the dwindling turnover in the latest rebound from a much higher low of 3049 to 3157 this morning, up 108 points or 3.5% from last week’s 3049 low, implies that players expect the market to consolidate and are starting to sideline themselves. 

However the lower volumes could also mean that sidelined players can still be lured into the market if the strong rebound led by blue chips and continued speculative interests in situationals and penny stocks continue during the anticipated consolidation and no new nasty surprises rear its ugly head.

Meantime the index should continue to signal a buy whenever it falls towards the 38.2% recovery mark (3079) and a sell on approach to the 61.8% point (3169) with the half way 3124 a ballpark neutral area.

Looking at 9 of the earlier list of 16 STI heavyweights commanding some 80% of its weightage, most have exceed the rebound targets that were placed on them after the first round of selling. 

DBS ($21.10) which dived to $19.60 on March 5, has rebounded to as high as $21.60 above our $21-$21.50 and is still within this band today, signalling it is ready to test the Feb 28 50-cent breakdown gap. Support at $20.60-80. 

Unlike DBS, UOB ($20.80), has no breakdown gap to cover. After hitting a low of $19.50 earlier on Feb 28 and was at a higher low of $19.70 on March 5, UOB rebounded back to $21 near its recent $21.50 record peak. 

This indicates better potential to test the peak than DBS which suffered a severe 16.6% correction from its $23.50 Feb high compared to UOB’s 9.3% pullback.

UOB is a stronger trading buy at $20.20-60 than DBS at $20.60-80 as the latter will take longer to rebound to $22 compared to UOB’s potential to test 421.50 peak.

OCBC ($8.60), which lost 9.9% from $9.10 to $8.20 during the recent turmoil, appears to have started its consolidation earlier than its bigger bank rivals. Since it is holding on to the higher end of its $8.20-75 rebound band, it has as bright a prospect as UOB to test its $9.10 all time high and reach for higher levels possibly around $10 in coming months.

Capitaland ($7.40) has also exceeded the $7.25-40 rebound target, climbing back to $7.50 after plunging 20.6% from record $8 high to $6.35. Having lifted its series of lows to a s high as $6.90 last week, a full recovery to $8 appears to be coming. Some resistance can be expected around $7.75-85.

CityDev ($13.50) too has not yet reached our rebound target of $14-$14.20, reaching a high of only $13.90 from a low of $12.4. But it is building a base around $13-$13.50 now which should pave the way for a rally to this target. It has almost succeeded in filling the small Feb 28 breakdown gap between $14 and $13.70 and is poised to rally to near $14.50.

The star property heavyweight, Kepland ($8.75) showed its prowess when it rallied back to near the $9.35 peak, reaching $9.10 a week ago from the March 5 low of $7.60.  Among the Big 3 property giants, Kepland should be the first to test $9.35 which could come as early as this week or next. Support is at $8.40-55. 

KepCorp (17.70) – has also not met our $17.80-$18.20 technical rebound target, repeating last week’s  $17.80 this morning. It should climb back to the lower end of its old $18.10-$19.10 trading band soon and renew its consolidate there before a test of the $9.60 peak, assuming the bull market continues to get back to its feet. Buy on slight pullback to $17.20-40

SCI ($4.70) has also exceeded rebound target of $4.60, reaching $4.72 again today, a big jump from its $4.16 March 5 low. Its resilience is shown when its low was raised to $4.56 yesterday from $4.44 last week implying a rally back to the $4.80-88 highs and new peaks. Buy around $4.60. 

SingTel ($3.24) appears to be the one of the weakest rebounders and quicker to give up its gains. From a low of $3.02, it moved up to $3.36, well below the $3.70 peak and came down quickly to $3.12 last week. Being one of the lowest absolute priced blue chips of the lot, it attracts more nimble players who moved in near 4.31,2 and moved out above $3.20. But now the stock appears to be holding well at the high end of this band and should move back to $3.30-40. Trading buy at $3.18-20.

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20-Mar-2007

Searching for direction

- The STI has fallen into a consolidation pattern since the 14th of March, and is currently trapped within its 50 and 100-day moving averages.

- The recent rebound for the STI is accompanied by relatively low and declining traded volume. These indicate that the current price rebound may not be sustainable, as investors seem unwilling to commit their funds until the market has established a firmer footing.

- We also observe that the recent advance to decline ratio (ADR) of the index member stocks on a weekly basis has been relatively low. The recent ADRs are volatile, and there is no sign of a sustained rise in ADR to reaffirm the emergence of a sustainable uptrend for the STI. We expect this ambivalence in the market to continue for a while longer (refer to chart 1).

- The volatile ADR, low traded volume and the current downtrend of the 10-day moving average signal a current downside bias for the STI.

- Based on our previous quantitative analysis (6th of March), we maintain our 15% correction target from the peak at 3,316.22. This would have placed the bottom of the correction close to the upper band limit of our forecasted support zone of 2,700-2,800. The immediate resistance level for the STI remains at 3,220

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13-Mar-07

Brace yourselves for a pullback

- The typical wall of worry was scaled over the last 5 trading sessions after the STI rebounded from a low of 2,931.63 to break above our 3,100 resistance level and also filled the gap between the 27th and 28th of Feb. We caution investors against turning positive in the near-term as our

analysis has revealed certain signals that indicate more selling could be in store.

- The first sign of danger came from the weak traded volume that accompanied the index recovery over the last 5 trading days. This indicates that the uptrend is not sustainable in the near-term.

- The second sign of danger we discovered was imbedded in the quantitative analysis of the historical volatility and price movement of the Straits Times Index, where we compared the volatility behavior between the May 06 sell-off and the current sell-off in Feb 07.

- Typically during a sell-down, the volatility index would spike from its lows until the STI reached a support and rebounded. This rebound would cause the volatility index to fall back towards a level close to 0. For the May 06 sell-off, it took the volatility index approximately 3 months to return back to levels that were close to 0. However, in the current market situation, we saw a very sharp plunge in the volatility index within the span of 5 days, which has come very close to the levels before the sell-off began. Thus we anticipate a very high probability of another spike in the volatility index, which means the index could pull back once more (refer to chart 1).

- In most cases, this scenario would not be significant enough by itself to warrant caution since the volatility index has reached levels close to 0 and saw minor spikes thereafter without the index pulling back since Sep 06. However, it may be different this time, based on the weak volume of

the recovery and evidence from the quantitative sell-down analysis in our previous report (6th Mar 07), where we stated 86% of the time when the benchmark plunged more than 9% in the 1st phase of the sell down, the correction would extend to at least 15% in total. Thus, we advise investors to brace themselves for another pullback.

- Resistance set at 3,220 and support zone maintained at 2,700 - 2,800

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Extracted from UOB Kay Hian

Quick Snippet on the market.

We had earlier painted a scenario of further downside for the STI as the
risk appetite of investors will be reduced significantly . The fall in the
Dow of more than 240 points last night and and the contagion effectfrom
other markets will continue to reinforce this trend and acclerate the
adjustment in risk premiums. Overall we are looking at the next downside at
2700(4% premium).  But it may get a lot lower as the risk perception rises.

Investors should stay nimble and for traders be quick-footed. We expect
higher volatility and the high beta stocks could come under pressure.  The
high betas which could come under selling pressure: DBS, CapitaLand, SGX,
UTAC. Defensives: PST, SingPost, Comfort Delgro, SIA Engrg. We may want to
wait for the weakness first even for the defensives.

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7-Mar-07

Conflicting signals may end soon as STI winds down its wild swings of past week and consolidation sets in with STI building new base around 3000-3100  

The market needs to show signs of stability soon even if it cannot immediately recover half (to STI 3124) of its 384 point or 11.6% plunge from 3316 to 2932. After a week of breaking major psychological round numbers from 3200 to 3100 and 3000, and in the process wiping out 2 months of gains, less volatile movements will give investors confidence to bargain hunt without fear of another barrage of selling.

Even if the STI has not bottomed out, a consolidation of the sharp losses means the worst is over and a new base around 3000-3100 can be built. If this base fails to hold up for long due to remnant selling as the market finds its bottom, it still implies that new lows may not be too far from 2950-3000.

Moreover, an orderly unwinding of short term trading positions will give longer term investors confidence to buy on weakness towards 3000 or briefly to 2950 and hold on to their present holdings. A syncronisation of both traders’ and investors’ strategies would be a strong signal that the STI may well have found its bottom around 2930-50. 

While volatility may be exciting and well tolerated in a raging bull market which we had already seen since mid-2006 to end-Feb, the past week’s series of plunges is a strong indication that the bull can no longer roar. It also implies that the STI’s upside potential this year would not be much above 3316.

Looking from this angle ie the potential for STI to test its 3316 peak this year, the selldown could ironically be seen as a blessing in disguise, providing cheaper buying opportunities for genuine investors as most blue chips are now showing increasingly attractively lower valuations.

If the bull run had just continued non-stop, analysts would be forced to raise earnings and other valuation estimates to the extent these would become increasingly unrealistic. 

Overall earnings growth this year should remain healthy at around 10-12% vs 15-17% last year. The market correction has brought down market PE back to 14-15x vs 17-18x at the peak with room for it to move up again and avoiding overly bullish forecasts that higher PE at 19-20x can be reached.  

On the technical front, the fairly quick rebound back to above the 38.2% fibonacci recovery mark (3078) of 384-point plunge from 3316 record peak to 2932 up to this morning from Monday’s new 2007 intra-day low of 2932 gives hope that all is not lost following the severe market correction which had come out of the blue.

Another healthy sign is the STI’s ability to close higher yesterday for the first time after 6 straight trading days of losses. This morning’s opening gap at 3096 vs yesterday’s 3036.52 close and 3102 high suggests that we should see another positive finish today but it would be good if the index could stay well above the morning low of 3068 and stick above the 38.2% mark of 3078.

The past week had seen a two-phased plunge – the first on Feb 27 and 28 from the Feb 26 record 3316 high to 3040. A reflex rally took place towards the end of Feb 28 taking the STI to end at 3104 and this snap rally continue into the opening minutes of March 1 trading as the STI surged to 3155 after opening at 3134.

The second stage of the plunge resumed the very day taking the STI to 3055 low and after another tame rebound at the day’s end to 3093 and to 3105 last Friday, March 2 (closing at 3079), a scary Monday saw the index sinking to a slow as 2932. 

The equally strong rebound to 3102 this morning ie a powerful 170-point rebound in less than 48 hours is a good sign of a possible recovery to the half way mark of the 384 point plunge ie 3124. The next target would be the 61.8% point at 3169 once 38.2% mark (3078) being currently nursed acts a short term support. However if 3078 breaks, next support will be around 3040-3050 followed by 3000.

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6-Mar-2007

What goes up must come down…

- In a single session, the STI has broken through our support zone, shedding over 96.45 points yesterday. The last 5 trading sessions have resulted in the STI breaching the 50 and 100-day moving averages, which translate to a high probability of more downside ahead.

- Given the oversold signals shown by the near-term price indicators, we can expect a lot of volatility over the next 5-10 trading days as the STI will attempt to stage a technical rebound before it resumes its down-trend.

- Elliot wave counts indicate that the benchmark is currently undergoing a corrective wave (Wave 4) within a 5-wave up-cycle, which began in June 06.

- Quantitative analysis has revealed a behavioral trend in the index during its correctional phases, which supports our forecast of a further downside for the STI in the weeks ahead.

- Using the degree of losses sustained by the STI during every significant correction from 1981 to date, we noticed a pattern that occurred in 13 out of 15 such corrections (86% historical occurrence). We broke our measurements into 2 parts, the 1st part that was the 1st phase of the correction which was followed by a mild rebound and the 2nd part that measured the completed correction.

- Every correction that suffered a loss ranging around 9-11% within the 1st phase of the sell down, the index would resume its plunge after a muted attempt to recover. The final phase of the correction would result in a loss of over 18% from its peak. However, where the index chalked up a loss of less than 9-11% within its 1st phase, the STI recovered strongly and continued its rally. This occurred in Jan 04 and Aug 05. The only 3 exceptions out of the 13 occurrences were in Aug 88, July 99 and May 06, where the index suffered a pullback of just 15%, despite crossing the 9-11% mark in the 1st phase of the sell down (refer to table 1).

- As of yesterday's closing, the STI has lost approximately 10% from its peak at 3,316.22. Hence a conservative measurement forecasting a 15% loss from its peak would place the STI close to 2,800. Thus, we set a support zone at 2,700 - 2,800. Resistance set at 3,100

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BT,

Singapore, 31 January 2007 - Following the latest scheduled review of component stocks of the Straits Times Index (STI), the following changes will be made at the start of trading on Monday, 5 February 2007:
  • Four stocks will be replaced, viz. BIL International Ltd, Dairy Farm International Holdings Ltd, Haw Par Corporation Ltd and TPV Technology Ltd;

  • Six stocks will be added to bring the number of components back to 50, viz. Thai Beverage Public Company Ltd, Suntec REIT, Olam International Ltd, Genting International Public Ltd, Labroy Marine Ltd and CapitaCommercial Trust.
The main criterion used in this review of component stocks was liquidity as measured by the average daily value traded over one year. Market capitalisation and free float were also taken into account.

The weight factors of several index stocks will also be updated on Monday, 5 February 2007 to reflect corporate actions that have taken place (see table below).

With these changes, the 50 stocks in the STI capture 51% of the average daily value traded on the SGX and 64% of the market capitalisation of stocks listed on the SGX.

Table of index stocks with new weight factors

Name Current weight factor New weight factor
1 Allgreen Properties 0.35 0.45
2 CapitaCommercial Trust - 0.35
3 Datacraft Asia 0.50 0.45
4 Genting International - 0.25
5 Hyflux 0.50 0.45
6 Jurong Technologies 0.65 0.25
7 Labroy Marine - 0.35
8 Olam International - 0.30
9 Parkway Holdings 0.80 0.55
10 Singapore Exchange 0.90 1.00
11 Singapore Petroleum 0.20 0.35
12 SingTel 0.35 0.45
13 StarHub 0.25 0.35
14 Suntec REIT - 0.75
15 Thai Beverage - 0.20
16 Total Access 0.20 0.15
17 UOL Group 0.45 0.60
18 Venture Corporation 0.70 0.50
19 Wing Tai 0.60 0.50

-- Edited by KK at 20:55, 2007-01-31

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Extracts fm Frasers report dated 19-Jan-07,

Outlook remains bullish on expected wide ranging market friendly Budget measures, robust earnings growth prospects and Wall Street’s traditionally strong year 

The Feb 15 Budget is expected to come up with wide ranging measures to ensure the economy is on a sound footing, growing around 4-6% a year and able to withstand recession-induced external shocks in the next 2-3 years ahead of the opening of the IRs.  

To ensure the success of the IRs and more importantly the trickle down economic benefits from job creation and tourist spending dollars, the Budget measures must be skewered towards boosting investments further. 

Some drastic direct tax measures such as 1-2% cut in corporate tax to 18-19%, will boost investments further and sustain corporate earnings growth while indirectly nullifying the adverse effects of the 2% GST hike and employer CPF hike. 

Investor bullish behaviour is probably mirroring expectations that the Budget will help prevent any untoward slowdown in earnings growth, which could harm the bull market scenario. 

With more earnings stories spreading throughout laggard sectors, lately construction/infrastructure/engineering have been strongly rerated along with property and banking stocks which continued their record breaking runs as the IR story continues with a probable third one in the southern islands. 

It is not only one-year earnings growth that matters but the next 2-3 years and even if there is a slight slowdown this year to the high single digit range, the medium term bullish impact of the forthcoming Budget measures may be felt in 2008-09 earnings, ahead of the IRs . 

Thus the continuing bull run this month implies robust economic and earnings growth prospects in the next 6-12 months as more cash flush foreign funds, new to the Singapore market join in the bullish appraisal of Singapore’s long term economic growth story, thanks in large measure to the IRs. 

Thus even if there are a few pullback episodes of around 5% or a single more drastic 10-15% correction as seen in mid-2006, the bull run may not necessarily be derailed, especially in the light of the continuing STI rallies into uncharted waters early in the new year.    

With the Budget still 4 weeks away, the STI appears poised to cross the 3100 mark and may target a temporary peak around 3150-3200 before making a meaningful pullback. This cooling off could come around March after Chinese new year.  

By then the 3000 level could become support followed by 2950. And without any nasty external shocks especially led by Wall Street, the bull market will remain intact. Moreover, looking at past records, Wall Street tended to rally strongly in the last 2 years of a second-term US President.  

Even in 1987 in the third year of Reagan’s Presidency, New York recovered well after Black Monday Oct 19, as a result of the earlier strong 5 year bull run from 1982.  Clinton too hosted a lengthy bull run from 1993, continuing from Bush Sr’s period, picking up steam from 1996 to January 2000 before the tech bubble bursts.  

The present President saw the bull run starting from early 2003 similar to the Singapore experience and judging from the average 5 years of the Reagan/Clinton bull era, 2007 promises to be another record breaking run on Wall Street.



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Extracted from OCBC Research dated 5 Oct 06

Straits Times Index SINGAPORE
Charted Territory
Ritesh Menon
(65) 6531 9807
e-mail: ritesh@ocbc-research.com
5 October 2006

Where do we stand across the board?

- After a 31-point surge on the 2nd of Oct, the STI has slowed down over the last 2 trading days. The index is now in sight of its May 06 peak at 2,666.33 after closing at 2,602.92 on 4th Oct, which is a mere 63.41 points away.
- This one-day surge on 2nd Oct was brought about by the rise in the banking and property counters. But we are beginning to see signs of weakness arising from the electronics and manufacturing sectors.
- Bearish candlestick patterns have formed on the daily price charts, adding to the monthly bearish candlestick formations which have yet to be neutralized, despite the recent surge in both the electronics and manufacturing sectors (Refer to chart 1, 2, 3 & 4 on pages 2 & 3).
- The Sesdaq index has neutralized its bullish candlestick formation on 29th September as of 4th Oct as it closed at 119.87, thus we forecast weakness going forward as well (Refer to chart 5 on page 3).
- The STI has displayed similar weakness on its monthly price chart. The bearish candlestick formation in May 06 has yet to be neutralized to date. (Refer to chart 6 on page 3)
- Short-term and medium-term stochastic indicators for the SES Electronics, Manufacturing, Sesdaq and the STI are within overbought regions, which would indicate further weakness in the days ahead.
- We expect broad market weakness to first emerge from the manufacturing, electronics and Sesdaq counters, then the finance and property sectors.
- The STI has an immediate resistance level set at 2,620 and an immediate support level set at 2,500, just below its 61.8% Fibonacci level (Refer to chart 7 on page 4)


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Extracts fm OCBC Report dated 13-Sep-06,

Prognosis



  • The Strait Times Index (STI) briefly tested the 61.8% Fibonacci retracement at 2,517.95 before staging a pullback over the last 4 trading days towards the 50% Fibonacci level at 2472.12.
  • Elliot wave counts indicate the STI is still in its final leg within wave 2 of a 3-wave correction, suggesting there may still be some upside.
  • Candlestick formations and oversold short-term price indicators also point to an impeding reversal in the recent pull back.
  • The convergence of the moving averages is further evidence that a change in trend is imminent. (Refer to chart on page 2).
  • We expect to see the benchmark make an attempt to test the resistance level of 2,600, which also sits within a price gap that occurred between 11th and 15th of May 06. We expect the rebound to be short-lived.

Quantitative Analysis


  • To support our theory that the current correction has yet to end, we went in search of quantitative data.
  • Using the degree of losses sustained by the STI during every significant correction from 1981 to date, we noticed a pattern that occurred in 13 out of the 15 such corrections. (86% historical occurrence)
  • Every correction that suffered a loss ranging from 9-11% within the first phase of its sell down, the index would resume its plunge after a muted attempt to recover. The final phase of the correction would result in a loss of over 18% from its peak. But where the index chalked up a loss of less than 9-11% within the first sell down phase, the STI recovered strongly and continued its rally. This occurred in Jan 2004 and Aug 2005 (Refer to table on page 2).
  • The only 2 exceptions were in August 1988 and July 1999, where the index suffered a pullback of just 15%, despite crossing the 9-11% mark in the first phase of its sell down.
  • To conclude, we reiterate our view that the STI will resume a sell down in the weeks ahead, which would bring the benchmark to our forecasted support zone around 2,000 - 2,100.


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Extracted from BT

S'pore market not cheaper despite low stock valuations

Study shows the bourse carries higher risk premium post-2000

By WONG WEI KONG
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SINGAPORE stocks may be trading at valuations lower than historical figures, but that does not necessarily mean that the market has become cheaper.

While it is quite a common practice for investors to look at the fair price-earnings (PE) ratio of the market using the historical valuation range, this could be misleading as the historical PE band could have shifted, according to a study by UOB Kay Hian.

Based on the findings of the study, UOB Kay Hian said market players have implicitly accorded a higher risk rating on Singapore equities in the post-2000 period. 'The main guiding parameter is in the higher equity risk premium (ERP) of the market in the post-2000 period vs the pre-2000 period,' it said.

The higher risk rating could be attributed to the maturity of listed Singapore companies now seeking new growth avenues by expanding their exposure to the overseas markets where risks are normally higher.

Among the stocks which saw risk premiums rated upwards since as far back as 1997 are Keppel Corp, Keppel Land, OCBC, Neptune Orient Lines and SingTel. Stocks which have a shorter history were not included in the study.

Based on the risk premiums accorded to the market, the trading range in PE terms could now have shifted to between 10 times and 14 times from between 16 times and 25 times previously. 'Hence, it would be quite misleading to talk about the market being cheap from a historical perspective,' said UOB Kay Hian, Singapore's largest broking house. 'Because of this, we believe the next historic low for the Straits Times Index could be at a PE of as low as 10 times.'

The bull run in Singapore stocks was brought to a halt in late April, when worries about US inflation and interest rates sparked off a period of sharp sell-offs. While the market is less volatile now, sentiment is still uncertain. Market players expect the relief following less hawkish comments on inflation late last month by US Federal Reserve chairman Ben Bernanke to be punctuated by nervous trading as investors keep their eye on the US economy.

There are fears that a sharp slowdown is under way in the United States, amid signs of weakening consumer confidence and spending.

UOB Kay Hian said it still sees downside risks and said investors should buy only on a pullback. 'We advocate a more defensive posture, preferring stocks with lower betas, supported by good dividend yields on market dips,' it said.

Some defensive plays with good yields are Singapore Post, Hong Leong Finance, Singapore Press Holdings, SIA Engineering and SMRT, it added.

The Straits Times Index closed up 10.47 points at 2,448.73 yesterday.

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The short term prognosis

 - Wave 2 of a 3-wave correction is currently in progress, as per our forecast on 15th June. The index surged up over the last 2 weeks and is now just inches away from our forecasted resistance level of 2,450 over the last 2 trading days.

 - Short-term price indicators are beginning to emerge into overbought territories. This is an indication that wave 2 is nearing its end.

 - Going forward, we forecast the resistance of 2,450 will be breached as the index heads to 2,472.12 and 2517.95, representing the 50% and 61.8% Fibonacci levels respectively (refer to graph 1).

 - After which we expect the index to turn, as the broad market sell down resumes.

Quantitative analysis in support of Wave 2

 - We ran a quantitative test on the index components to measure their individual returns in comparison to the overall index returns. We crunched the data to churn out the total number of component stocks that underperformed the index return over the 1st half of 2006 on a weekly basis. As expected, the results supported our analysis of the weakened state of the index, reflecting the lack of confidence and buying strength of the broad market.

 - Plotting the results (refer to graph 2), we can clearly see the rising percentage of underperformers (green line). To make this trend more pronounced, we plotted an exponential trendline (red line) of the results. This shows a gradual rise in gradient, despite the recent rebound in prices.

 - Thus using the quantitative results, we are presented with compelling evidence that this current rise in prices is not the continuation of the bull market, but a short-term rebound in a larger correction cycle. This is our forecasted wave 2 of a 3-wave correction.

 - Index weakness was visible throughout the 1st half as the index completed its final phase to its peak of 2.666.33. This was displayed by the rising trend (red line) of underperformers.



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[Dow Jones] STI''s 1.3% fall to 2627.08 may be partly due to institutions trimming positions ahead of Morgan Stanley Capital International''s annual review tomorrow. Trader says although investors don''t know nature of review, they may be cutting positions in markets that have done exceedingly well so far. Says MSCI''s review one reason for increased selling in blue chips; DBS (D05.SG) down 2.6% at $18.70, SingTel(T48.SG) down 2.2% at $2.69, CapitaLand (C31.SG) down 2.4% at $4.98,Yellow Pages (Y07.SG) down 4% at $1.47.

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Extracted from UOB KayHian

ST Index-running into critical resistance- reduce longs positions and lock in gains.

Singapore bourse- The Singapore bourse has made significant gains over the past 2 weeks and a correction appears likely given various signs of bearish divergence. We recommend readers reduce position in especially small caps which had rallied substantially over the past 2 weeks. We have several reasons to be cautious. Firstly, the index has reached our target objective of 2430-2450, which we see as a critical resitance zone. Secondly there are numrous indications of runaway optimism, judging by the suden slew of earning upgrades and bullish consensus views on the index. For example, a recent press report quoted a 2600 price objective. The fact that bullish forecasts are being made after the index has already raked in significant gains is cause for concern. Thirdly market volume had rallied to 4 month highs and historically they quicly give way.There are also signs of divergence in market breadth for four consecutive days. Lastly, our reading on the Elliott wave patterns suggest that a near term peak could take place on the ST index near the 2330-2350 level. The index has already entered this zone with the index hitting a high of 2441. Our working assumption is for the index to correct back towards the 2320-2350 level. For this set-up to gain odds, we would need to see a reversal from the 2441 below 2417. Additionally, readers could look at signs of deteriroration on the Hang Seng Index which had rallied shaply in recent weeks.

In any case, readers should reduce long positions as risk reward is no longer as attractive as in mid November when we first recommended holding on to longs.


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