STI in early stages of bottoming out process for 2008 that could drag till October before a sustainable year-end/new year rally sets in.
The market will have to bottom out sometime in the next month or 2 this year as it is unlikely that we will end the year at the STI’s lowest point.
Although there is no hard and fast rule to say that the traditional year end/new year rally must be repeated this time, it is still likely to take place as the market is now at its year’s low and a bottom should be formed for 2008 before year-end.
It is highly unlikely that the STI will end the year at its lowest point as that would mean another 4 more months of scraping the bottom.
Going by bear market antecedents the floor would often be recorded between August and October and while there could be unsustainable technical bounces of up to 100 points or so, the real rally would more likely be in December/January with November sowing the seeds of the Xmas/New Year rally.
Having broken the key 2800 support (38.2% retracement of the 5 year bull run from 1197 in March 2003 to 3831 in Oct last year), the 2500 half way mark becomes the next major support followed by 2200 (61.8%).
But the 2600 area should be defended strongly even if the STI is fated to reach its 2500 half way retracement later as 2600 marks 2 key previous peaks (2608 on Jan 3 2000 and 2599 on May 8 2006). Thus a broad bottom this year could be anywhere between 2500 and 2700.
Chances of the floor being around 2500-2600 or 2600-2700 are about equal (this morning’s low is 2688) but it is very unlikely that the index would sink to as low as 2200 this year. Even if the index overshoots on the downside below 2500 to near 2400, it should quickly recover to 2500-2600 rather than break 2400 and go down further to 2200-2300.
Thus 2400-2500 should be a very strong support area given that the peak to trough point measurement before and after the last 2 major crisis i.e. the 1997-98 Asian Crisis and 2000-2001 tumultuous time was about 1300 to 1400 points.
The peak was around 2100 before mid-1997 onset of Asian Crisis with the floor at 800 in Sept 1998. The next crisis was even longer from early 2000 at STI 2600 peak to a Sept 2001 bottom of 1200. This floor was tested again in 2002 and early 2003 before the 5-year bull market was born taking the index to as a high as 3831 last year.
A repeat of the 1300-point plunge during the Asian Crisis would take the STI to 2500 while 1400 points would see it at 2400. In fact we have already seen the bulk of this carnage as the STI had already lost more than 1100 points to 2688 today.
But investors are not ready to move out of the sidelines yet and start investing seriously as there is no impetus to do so on the economic and corporate fundamental fronts. However any worsening of the situation in Sept-Oct would offer buying chances as spirits would be at the lowest ebb then and a floor for 2008 should finally be found. This should pave the way for the year-end/new year rally that could take the STI to 2900-3000.
At about 2700 now a waiting game is being played out and once the STI falls to 2600 we can expect investors to start showing their hands and buy more aggressively below 2600. Fund managers are likely push up the market to 2900-3000 by December and Jan 2009 reaping a 300-400 point bonanza.
Small players with the holding power should start looking at blue chips now if they can stomach a 5 to 10% downside. The oil & gas sector and commodity stocks should be high on their radar screens as these had continued to see exciting plays and will always remain in the news.
1 comment:
STI in early stages of bottoming out process for 2008 that could drag till October before a sustainable year-end/new year rally sets in.
The market will have to bottom out sometime in the next month or 2 this year as it is unlikely that we will end the year at the STI’s lowest point.
Although there is no hard and fast rule to say that the traditional year end/new year rally must be repeated this time, it is still likely to take place as the market is now at its year’s low and a bottom should be formed for 2008 before year-end.
It is highly unlikely that the STI will end the year at its lowest point as that would mean another 4 more months of scraping the bottom.
Going by bear market antecedents the floor would often be recorded between August and October and while there could be unsustainable technical bounces of up to 100 points or so, the real rally would more likely be in December/January with November sowing the seeds of the Xmas/New Year rally.
Having broken the key 2800 support (38.2% retracement of the 5 year bull run from 1197 in March 2003 to 3831 in Oct last year), the 2500 half way mark becomes the next major support followed by 2200 (61.8%).
But the 2600 area should be defended strongly even if the STI is fated to reach its 2500 half way retracement later as 2600 marks 2 key previous peaks (2608 on Jan 3 2000 and 2599 on May 8 2006). Thus a broad bottom this year could be anywhere between 2500 and 2700.
Chances of the floor being around 2500-2600 or 2600-2700 are about equal (this morning’s low is 2688) but it is very unlikely that the index would sink to as low as 2200 this year. Even if the index overshoots on the downside below 2500 to near 2400, it should quickly recover to 2500-2600 rather than break 2400 and go down further to 2200-2300.
Thus 2400-2500 should be a very strong support area given that the peak to trough point measurement before and after the last 2 major crisis i.e. the 1997-98 Asian Crisis and 2000-2001 tumultuous time was about 1300 to 1400 points.
The peak was around 2100 before mid-1997 onset of Asian Crisis with the floor at 800 in Sept 1998. The next crisis was even longer from early 2000 at STI 2600 peak to a Sept 2001 bottom of 1200. This floor was tested again in 2002 and early 2003 before the 5-year bull market was born taking the index to as a high as 3831 last year.
A repeat of the 1300-point plunge during the Asian Crisis would take the STI to 2500 while 1400 points would see it at 2400. In fact we have already seen the bulk of this carnage as the STI had already lost more than 1100 points to 2688 today.
But investors are not ready to move out of the sidelines yet and start investing seriously as there is no impetus to do so on the economic and corporate fundamental fronts. However any worsening of the situation in Sept-Oct would offer buying chances as spirits would be at the lowest ebb then and a floor for 2008 should finally be found. This should pave the way for the year-end/new year rally that could take the STI to 2900-3000.
At about 2700 now a waiting game is being played out and once the STI falls to 2600 we can expect investors to start showing their hands and buy more aggressively below 2600. Fund managers are likely push up the market to 2900-3000 by December and Jan 2009 reaping a 300-400 point bonanza.
Small players with the holding power should start looking at blue chips now if they can stomach a 5 to 10% downside. The oil & gas sector and commodity stocks should be high on their radar screens as these had continued to see exciting plays and will always remain in the news.
Post a Comment