Sunday, February 19, 2012

Weekly Market Review and Perspectives

Week 7 of 2012.

1. STI Performance Review
This week, the STI raced to recapture the 3000 mark. Convincing? Not quite yet. We only saw a short breakout on Wednesday before a fall back below 3000 levels occured with a pretty big dark candlestick. On Friday, STI had closed 3000. 

From both TA and FA point of view, this coming week is crucial. 
First, for proponents of TA, STI's failure to breakout from 3000 is not helping many to make a decision in this seemingly overbought market. Talk to anyone and people will say that they are treading cautiously now since everything 'seems too high'. Too high is relative, at least to me - so it suggests nothing. But translate this to overall market action, it is significant as we want retail and institutional investors to come in and continue the buying pressure. So, this coming week will finally throw more light on the value investors are putting on the STI and if it can breakout successfully, the next target I am putting is 3206, using the height of difference between the low in Dec and breakout in Feb (past 2920). 
Not thinking too far, the uptrend is strongly intact on a weekly chart (I do support a breakout but at least in the next next week since STI should be taking a break this coming week) and the latest week candlestick is still suggesting strong buying pressure with sustainable volumes. RSI and MACD are trending upwards with the MACD crossing 0 for the first time since August. Another bullish indication. MACD histogram is all green for the past few weeks and this suggests momentum is still firmly with the bulls. 
Second, Greece is still on the cards for everyone. So long as its default potential is not put to bed, this market will not ease on cautiousness. We saw how a little indecision in providing the full aid to Greece on Wednesday night caused a market turmoil on Thursday so anything may happen.

2. STI Performance vs other Key Indices
Below are 2 graphs with difference starting dates (used in the computation of the % relative gain/loss). I have chosen 1 Oct and 1 Dec as reference points due to their local lows.
It is interesting to note that the Hang Seng index is a clear outperformer compared to the rest in the basket. Its rise has been nicely sloped and has on every single day after 1 Oct and 1 Dec (except 12-13Dec) reference points outperformed the STI index. This meant that if you went long on HSI and STI on 1 Oct and reviewed your portfolio any day after til date, you would have a better result with the HSI.
However, if we delved into the rise of the STI since 1 Dec, it was not a bad performer. Assuming we went long on the STI on 1 Dec and looked at it today, only doing so with the HSI and Nikkei(slightly) would yield a better result. 

3. Key Sector Performances of the STI
Looking at the performance chart of the key sector indices referenced on 1 Dec, it is clear that the maritime index has been way better than the STI. It is almost a 24% increase in the profits that would have been obtained by longing the STI on 1 Dec and reviewing it today! The next outperforming index is the Oil&Gas sector that has also traditionally been pretty strong given Singapore's fundamentals in this area. Not surprising that these 2 sectors have been leading the charge on the recovery and although the performance of the maritime sector has been way stellar, one contributing factor was the tremendous loss it suffered in late 2011. 
So comes the question of which area to look at? Well of course, this ultimately boils down to your preference, risk appetite, portfolio optimisation and objectives. There are clear outperformers in this market. Will they last the trend? Of course one day they will too become expensive and people will begin avoiding them, seeking for more undervalued ones. Then comes the next question of which undervalued one? As it seems, the real estate index is still recovering from its losses in late last year due to stamp duty legislation. This is one area to look at given key blue chips like Capitaland and Keppeland are solid in balance sheet while reits provide good dividend yield.

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