The STI Stock Rally Still Has Some Legs Left?

The rally started some 5 weeks ago when sentiments were terrible but it was not totally unexpected. I made several correct buy calls in the lead up and during this rally as you may find in the "Historical Stock Calls" section of my blog. 

There was a strong technical setting that gave evidence to this pent up negative sentiment that will eventually swing the pendulum in the other way; temporarily or not, we still do not know. If you look at the weekly STI chart below, it was clear that the STI was due for a rebound 5 weeks ago when the first white candlestick appeared below the lower bollinger band. In an elastic rubber band case, it is in a way of overstretching it too far, with the first signs of it winning the war and tighten. 1 week later, MACD histogram registered its first green bar together with a white candlestick that ended higher, which marked a more complete 2 signal confirmation that there is a much higher possibility of a rally.

Now the question has to be if this rally still has legs to run? Well, to me, it is a yes.

1. On a technical and momentum driven set up, parallels can be drawn with the year-start rally.

1. Similar 2 white candlestick cross of the 20w MA line
2. Rebound off a low 2-3 weeks ago
3. MACD crossing signal line
4. RSI heading across 50%

And if I were to project the same momentum driven gains from the previous rally, one will expect the STI to have some fuel left to run another 5% at best. Nonetheless, there are 2 key obstacles in the way - the 100w MA line which has proven to be a very strong resistance point for the STI in the year-start rally when it only went at best 1% above it. The second is a upper bollinger band which is around 4% from current index points. I would discount everything and put a figure of around 3-4% TP point when this rally finally sizzles out (news hasn't been good lately still and the market has been kind of ignoring these, biased with momentum). 

2. Based on my earlier article on the correlation between Dow performance and the US earnings season, there is good empirical evidence to believe that the next 2-3 weeks will provide good further yields to the current positions. (That is of course assuming that Dow and STI are correlated as well) Alcoa will kick off the traditional earnings reporting season on 9 July Monday and going by statistics, we may well be in another good mood for the next 2-3 weeks.

I like the set-up here on a technical and mathematical basis and I will still be keeping my eggs in and slowly easing out in the next 2-3 weeks. Healthy trading.

Bulls and Bears In a Huge Tug of War

Prices seem to have recovered to a decent post-mid year level but again, some instability and poor news pouring from Europe and US have not helped the turnaround. The key question has to be if the short uptrend will be short-lived or will more bear action be realised?

Clearly the bears are leading the battle today on indices all over the world with the Dow already dropping 100+ points to ~12510 (3am SG time latest). But the bulls did recover from a 12460 position to pull back up to 12510 after a steep market decline right after the open. And this revelation of some bull action then bear tail repetitively have really gotten many traders burnt and hugely frustrated. What exactly is the true trend of the Dow Jones and the economic recovery that is being priced into key markets?

Looking at the Dow's daily chart, the pullback over the last 2-3 days was not unforseen. It was simply a cause of huge euphoria that got the market whipped up beyond its expectations, charging out of the upper bollinger bands. And so, the correction came in the form of Europe 'bad news' and US 'Fed's inability to act swiftly'. Nonetheless, I am seeing somemore pullback at least for the rest of the week with bulls and bears clearly oscillating control. At least when prices start to correct a further 3.1% from 12510 levels we can be quite sure that some form of extreme buying in will occur again. 

At least this is the only, but yet true, market constant we are beginning to appreciate thus far.

Danger Signs Telling in STI and Dow

 No, there has been no change in my view of the STI and Dow since 2 weeks ago when I first posted on the Dow. There is further information on MarketWatch that cautioned Dow going below its 200d MA, triggering a slew of sell orders that will bring the market terribly lower in the week and following.

The STI has already been trading below its 200d MA for quite awhile so that does not apply right now. However more sinister is an observation that the STI has broken through its resistance line and is swiftly headed downwards.

Outlook - Track closely. Too late to participate in the selling unless you can be terribly sure of the Greek election results. Market has been swinging up and down lately to have a decent direction path. US QE3 and China stimulus are still on the lips of traders - do not omit that in your trading decision. Possible return to green when prices tumble to the lower bollinger/RSI goes below 30%.

• MACD - trending downwards as with many regional and international bourses. Not at its 1-2 years historical lows yet so more downside still possible.
• RSI(25d) - persisting around 35% but still highly possible to be dragged down below 30% which is where to watch for.

Are we out of the doldrums yet?

After a 3 months hiatus from the equities market thanks to a timely break to the West, I am back finally to a interesting market situation today. The Great Singapore Sale some call it. Exactly how much of a bargain are we getting from the market today and is this so cheap that we are going to ignore market momentum and news pouring out of Europe?

I prefer to base the analysis with the US Dow Jones chart where there is most liquidity and consequentially the one that gains the most benefit from bank withdrawals happening right now in Europe and ECB liquidity injections.

So what is the Dow chart telling us right now?

1. Strong US - Evidently, the bull market is still clearly intact and the US has been on a recovery since the crisis in 2008. The plus here is in the market's strong belief as well as healthy statistical evidence that the US is going to be a key player to lead the world out of this crisis. 
2. No, not out of the woods yet - Contrary to popular belief right now that stocks are at a cheap especially those of commodities that were badly hit this month and ending last, the momentum of this correct is still heavily downside biased. There is nothing to suggest that the Dow has reached really horrendous RSI or MACD levels that a cheap equities market is for the taking. Furthermore, prices are still uncomfortably above the 100w MA and sitting on the 55w MA precariously. 
3. Volatility has increased but it is still LOW - Again, if you ever heard good traders speak - Anton Kreil is one of them - low market volatility is a boring and poor period to trade. To make good gains with bets (let's face it, however we argue, any stock market trade is but a bet after all) is to trade when volatility surges. In this case, note how the bollinger bands have been squeezing together.

Market Outlook

Despite the bad news still earmarked on most indicators, take light of the small white candlestick that has appeared on the lower bollinger band of last week's market action. Perhaps there might be a short bull rebound to reclaim ~13000 but it really depends on the US job market news to be announced this week. Nonetheless, any small news from Europe and supply of oil is going to further impact the market and drive it downwards further. 

The easiest way today is still downwards; take heed.

Dow Jones is Suggesting Something?

If you have been reading this blog for the last 2-3 weeks, you would notice that every piece of news that came out was mostly positive or bullish about the market and its items. But this week's events thus far, especially Wednesday's market activity have brought me thinking hard. Is this time to get out? Is this volatility what my risk management tells me that I cannot stomach? Is this walking the tight rope and trying gambling instead of trading in clear trends?

So, I took out ChartNexus and looked properly and indepth-ly into the Dow Jones weekly chart for a better signal of what is to come. Of course, I do not think I am the first to discover a bearish divergence on the MACD that has occured for the last 2 weeks, and soon 3. This is not too healthy coupled with a indecisive candlestick and probably after tonight, a black candlestick to appear. Over the last few months, divergences in MACD indicator has been very accurate in forcasting price action that will follow. I have highlighted them in blue circles. 

Bearish? Well I guess it is easy to gamble on this and say hey, if it goes back up on some further good US/Europe economic news, being in this, riding this volatility out would have been great. On the other hand, ignoring these signs would be foolish.
You decide. At least for me, I am heading for the exits before something else finds me. I would be happier with my profits and reduced risk and exposure in this roller coaster ride soon.

Come what may, I traded healthily and with conviction.