The strong performance in the first two trading sessions of 2009 bodes well for the Straits Times Index (STI). In the near term, the STI has broken above the resistance of the symmetrical triangle formation. Although investors must contend with rising volatility as the STI approaches the 1,991-point level (the low of the gap), we see a test of the 2,000 level as a possibility. Even a case for 2,218 is plausible as this level would coincide with the day high on Oct 14, 2008.
Notwithstanding, we would like to remind investors that this phase of the market recovery, which began in earnest from October last year, is temporary at best. Essentially, this is a positive uptrend in the guise of a broader bear rally trend and there are three indicators to watch.
First, a downtrending Coppock curve for the STI signals that the index could re-test the 1,473 lows in the next down cycle. Second, as in April 1986, September 1998, September 2001 and March 2003, empirical evidence shows that the STI troughed around the time when GDP data bottomed. Third, the STI has to clear above the 200-day EMA (exponential moving average) hurdle before we can safely assume the end of de-rating risks. Since the EMA is a lagging indicator, we estimate that it will require at least six to nine months for the STI to clear the 200-day EMA in the best case scenario.
This week our focus is on S-Chips - stocks of China-based companies listed in Singapore. We are bullish on food and farming-related sectors as China imported more urea, soya bean and vegetable oil based on the latest trade numbers. We also like Oceanus as a thematic play on rising abalone demand ahead of the Chinese New Year.
By KEN TAI, senior technical strategist, KELIVE RESEARCH (part of the Kim Eng Group)
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STI Recovery is Temporary at Best
6 January 2009
The strong performance in the first two trading sessions of 2009 bodes well for the Straits Times Index (STI). In the near term, the STI has broken above the resistance of the symmetrical triangle formation. Although investors must contend with rising volatility as the STI approaches the 1,991-point level (the low of the gap), we see a test of the 2,000 level as a possibility. Even a case for 2,218 is plausible as this level would coincide with the day high on Oct 14, 2008.
Notwithstanding, we would like to remind investors that this phase of the market recovery, which began in earnest from October last year, is temporary at best. Essentially, this is a positive uptrend in the guise of a broader bear rally trend and there are three indicators to watch.
First, a downtrending Coppock curve for the STI signals that the index could re-test the 1,473 lows in the next down cycle. Second, as in April 1986, September 1998, September 2001 and March 2003, empirical evidence shows that the STI troughed around the time when GDP data bottomed. Third, the STI has to clear above the 200-day EMA (exponential moving average) hurdle before we can safely assume the end of de-rating risks. Since the EMA is a lagging indicator, we estimate that it will require at least six to nine months for the STI to clear the 200-day EMA in the best case scenario.
This week our focus is on S-Chips - stocks of China-based companies listed in Singapore. We are bullish on food and farming-related sectors as China imported more urea, soya bean and vegetable oil based on the latest trade numbers. We also like Oceanus as a thematic play on rising abalone demand ahead of the Chinese New Year.
By KEN TAI,
senior technical strategist,
KELIVE RESEARCH
(part of the Kim Eng Group)
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