6 Week Temporary Debt Limit Increase

[Previous post: Tough Business Conditions - NOL, Vard Holdings]

Debt-Ceiling Increased Temporarily

As of 1am Singapore time, the Dow and S&P 500 had rallied more than 1.5% to pare some of the heavy losses sustained over the past 2 weeks. Republicans agree to increase the debt ceiling for 6 weeks in an attempt to come to a compromise with Obama's administration.

The optimistic

• Equities will rally to pare losses over the last 2 weeks temporarily
• A debt deal is still plausible so there is a chance market will trend even higher after these 6 weeks
• Bond-buying program from Fed will even less likely be removed in this period
• Amid all the news, Janet Yellen has been nominated to take over Fed chairperson role. Hurray to stimulus.

The pessimistic

• Yet another 6 weeks of volatility in addition to Fed's inconclusive Sept meeting
• Economic data will start coming in after 2 weeks of delay
• Still a good chance of yet another shutdown

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STI
Expect the STI to rally back to 3260 level where it should face strong resistance. It represents a rise of 2.9% on current day's close. Thereafter, the realisation of the increased volatility and uncertainty over the next 6 weeks should set in and revert markets lower.

• MACD - is postive and trending upwards. Crossing signal line soon.
• RSI (25d) - rebounding off 50% towards 70%
• Cross 20 and 50DMA. Yet another slightly bullish sign, value of STI is seen overcoming the 50DMA and trending to the 20DMA.



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Weekly Update - STI to Charge Further?

Current Weekly Market Theme:
Market euphoria over partial resolution of the fiscal cliff is on the wane and the market has been looking for new catalysts to spur another round of rally. 
The debt ceiling is looming around the corner and due for another round of political 'negotiations' by end Feb - expect more market volatility and jittery. Nonetheless, the debt ceiling has been raised countless times before and going by the remarkable standards US politicians set for themselves (and their political paths), we should see yet another kick-the-can-down-the-road situation unfold. Nothing new.
Anything related to China's growth is still hot and up-and-coming. China's GDP was a tad above analyst estimates with the census department announcing an official 7.8%. While still higher than expectations, the dampener is the reluctant acceptance that China's growth will not be returning to the stunning levels we have seen in the last decade any time soon. 

[Previous post: Breakout of the Laggards? - Wilmar, Midas, Tiger]

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STI Index goes from strength to strength; to Charge Further?
The STI has always been a huge beneficiary when China recovers given the large Chinese market links that the 30 component stocks have such as Capitaland, CapitaMalls Asia, Wilmar and Genting. The STI is also Oil & Gas heavy owing to Keppel Corp, Semb Corp, Semb Marine and Noble Group. These two sectors have been winners in the recent rally given a better-than-expected China and emerging markets recovery, bringing the STI to almost a 3 year high.
Taking a break this week, and owing to jittery fears about the looming debt ceiling, the unresolved debt crisis still ongoing in Europe, the STI took a breather with much profit-taking occuring this week. The big question is if the STI will continue to charge up further or see a near-term decline to even lower levels.

• Challenged 3190 key support levels in this week to close at 3211 on Friday. 
• MACD - positive divergence albeit declining. MACD still upwards trending but may seem to peak given the current run.
• RSI (25w) - exhibiting a seeming turning point.
• Level to watch - 3190 key support line. The STI is well perched on 3190 having tested the support this week by rallying to close on the support line despite dipping to 3160 in mid-week. Continue resting here will provide traders with confidence with the STI's rally strength and future upside may be more likely. If this support level is breached, the STI may seek a tumble down to 3080 levels.

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Olam Bonds plus Warrants Offer - To take or not to take for Retail Investors?

I was on annual leave travelling Europe for the last couple of weeks and was too busy since being back earlier this week to make any decent postings. Oh my, how much has the stock market rallied in my absence and how Olam made tremendous amount of headlines during the Nov-Dec period.

Being a  retail shareholder of Olam (vested), I received the thick bond and warrant offer booklet outlining all the details of this terribly complicated offering. 

1. 5 year bonds +
2. 3 year European warrants and then 2 years of American style warrants +
3. USD denominated exchange rate risk (USD down, bond coupon and maturity payment when converted to SGD down // USD down, warrants cost down, capital gain increase)
4. Trade-ability of bonds and warrants only in 1,000 units boardlot on SGX which makes odd lots difficult to dispose of.
5. (And in addition) Newspaper reports of people suggesting that the offer is really good and hence likelihood that the offer might be fully subscribed leaving little odd lot conversion possible.

Anyway, that's the simple qualitative analysis. 

Below is another simple quantitative analysis that I have came up with to aid my decision making process

Assumptions to calculations are

1. Based on purchasing 1932 bonds + 1,000 warrants (162:313)
2. Hold bonds to maturity (5 years lock-up)
3. Sell warrants immediately after 3 years lock-up
4. USD/SGD stays at 1.2273 level throughout 5 years
5. Calculations include ~S$28 brokerage fee to sell exercised warrants
6. Calculations factor in dilution factor in Olam share prices right after this offering assuming that ALL warrants are exercised and the company adjusts the warrant strike price accordingly in future dilution exercises to maintain the same spread.
7. Total annualised returns = (1 + Gain from 5 year bond coupons + US$0.05 bond discount after maturity + Gain from Warrants sale)^(1/5years) - 1

I think that to be putting in ~S$2,300 (for 1932 bonds) and taking the risk for 5 years, the minimum annualised returns that I expect from this investment be at least 6%. This is based on my own risk and target investment profile. In order to achieve this, the table simply tells me that I would require Olam stock price to appreciate by at least 30% in 3 years. So now, if you believe such is possible, then this subscription does make some appetizing sense.

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I also repeated the same analysis above to find out the sensitivity of USD/SGD exchange to this investment gain. The additional assumption is fixing analysis based on 

1. 20% gain in Olam share price (changing to 50% gain on Olam share price does not make the exchange rate sensitivity any greater)

As shown, the obvious fact is that exchange rate does little to impact total annualised returns. For the nitpickers, the weaker the USD, the better the gain becomes. And for analysis sake, the USD has been on a downward slide against SGD in the last 5 years due to weaker economic fundamentals and huge monetary stimulus (devaluation). However, in end 2013 the Fed has suggested an easing of the monetary stimulus with growth recovery in sight so expect some support at near current USD/SGD levels for the next 2-3 years.

In a nutshell, this offering ties Olam to the shareholders of the company for the long-term (at least for retail investors who may find it difficult to unlock value of bonds/warrants in the bond/warrants market). If you believe in the stock fundamentals that there is nothing wrong with being overaggressive in capital investment of late, that the company will return to positive cashflows in 2013-2014 after investments start to realise potential, that Olam has the liquidity in place to ride out any more storms, that the commodities market will make a timely rebound to push its stock prices up, then I would say this investment makes sense.

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Are We Setting Up for A Fall? - Weekly Update

Exuberance aside, the market seems to have fully digested the QE3 impact and traders have already began looking for other news sources to fuel their trading activities. In Singapore, the STI has done fabulously well over the last 3-4 weeks, outperforming the Dow and HS indices. 

Market participants that I have generally been speaking with these days seem to have a changed perspective of the upcoming 4th quarter of the year of one being optimistic and rally-like. Reason being: QE3 money will finally find its way into the money system globally and start to push up prices of commodities. Growing tensions in the Middle East and a looming war between Israel and Iran are threatening oil prices to levels past 100$US per barrel. This is still slightly good news for the badly battered commodity stocks and oil counters in Singapore and a rally in these pillars of Singapore economy looks imminent. 

Prices do not lie, don't they? And the fact that they are at their highest levels since the year start rally for most stock markets surely must tell us that people are predicting further upside. 

But wait, things are never as simple as they are usually. Traders know with ample information that the fiscal cliff is around the corner and it may be a rocky road ahead. Very rocky indeed should US politics fail to achieve a sort of consensus and delay action, as we have seen from their polarized political scene over the last decade. 

Technically, the STI (see chart below) seems to be redo-ing a pattern it was familiar with in the year start rally. With prices hanging at high levels and the MACD decreasing, it soon found itself in a huge slide back down to 2700 by June. Chances are people are jumping fervently onto the bandwagon today with smarter traders winding down positions in hordes lately. That explains the relatively unchanged levels since 3-4 weeks ago as well as the high volumes. MACD has been sliding downwards despite being provided a short respite by QE3. In the short run and near term, I am definitely not betting against the downtrend. Just so that I am on the safe side.

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The Rally is Finally Here? - STI

Finally the long overdue, investor-centric, QE3 was launched by Ben Bernanke for the USA in tandem with monetary easing policies adopted in key economies around the world such as China (last weekend, on restarting rail and infrastructure projects) and Europe (unlimited bond buying programme to stabilise debt markets). Markets have been in rally mood over the last 2 days clearly appreciative of the actions taken by these economies to restart sluggish growth in the world that has been badly plagued by political inefficiency and inability.

Key market movers on Thursday and Friday on the STI included commodity counters such as Wilmar, Noble Group and Olam as well as property stocks such as Capitaland, Ho Bee and Yanlord. Interestingly, it has been mentioned on Reuters that QE3 may 'spur China's central bank' into more action' albeit with a smaller probability of happening. However, that has clearly not stopped investors from punting bets in favour of a China's recovery, hence such attention on key commodities and property counters that will be huge beneficiaries to any further Chinese bank actions. 

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STI Outlook - Buy. Singapore will be a key beneficiary when money from US, Europe and China trickles down into the economy, restarting trade activities. Extra cash on hand also spurs investment into Singapore, something at which has already been at a high this year with the Sing Dollar strengthening tremendously due to demand. The STI will also be buoyed by any further Chinese Central bank actions in the coming weeks, if any.

• MACD - MACD trending upwards and positive divergence is back.
• RSI (25d) - RSI just rebounded from 50% and headed to 70%. Still room for play.
• Bollinger Bands - Prices are already closing in on the upper bollinger and possibly pulling the bollinger bands further wide apart for more upside volatility.
• 20d MA - Prices have just crossed the 20d MA on the back of a huge gap up on Friday.
• Volume - High volume accompanying the gap up in the STI on Friday, further signalling strong upwards buying pressure from market participants and more potential upside bets being placed.

Time to Scale Back on Uncertainty - STI

Alright, there was a visible lack of articles during the last week or so on this blog. The reason is simple - the STI looks to be headed to another 3000 level resistance and the uptrend is dwindling. Instead of getting caught with the already-pretty-old rally, I have been busy winding down on the remaining opened positions that I have been monitoring (You can find the list at the "Historical Stock Calls" section). I must qualify here that I am just lowering exposure in an uncertain market and not taking an opposite view to this rally scenario.

I must be brutally honest here though, that I have little confidence of predicting the next move that the STI is going to make. These are the 3 scenarios that I am considering

• STI to convincingly break 3000 on news of a combined China stimulus + US Fed QE3 packages.
• STI to hold at this level persistently (like between Feb to May) for a few months
• STI to breakdown again

On both technical and fundamental analysis fronts, I am quietly confident of the STI holding at this level for a considerable period of time, say 2-3 weeks, which is the 2nd option of my list of possible scenarios.

Fundamentally, 

1. the STI/Singapore stock exchange is undoubtedly one of the strongest performing market in the region and has remarkedly appreciated in the last 2 months and even retested the 3000 level set in Feb early this year whereas the HSI has failed to reach its similar highs.
2. Bad news have been sweeping in since start of 2nd half of the year with China and US tanking. So, the outlook is not as rosy as it was in the first half of the year but hey, why are stock markets still rallying? Simply because of the optimism that governments are going to act soon and see results in the next 6 months (money to flow into the system). So more bad news? No worries. 
3. Europe? Spain is out in the open for scrutiny while Greece fixes themselves. Italy and Ireland have been doing comfortably well in their own ability. It has already come to a point that the European leaders for once know how badly people are looking at their mess and how they ought to band together, probably, for the one and only time, to get everybody out. 
4. It's an IPO season isn't it? Companies are now rushing out their IPOs to catch on this improved investor sentiment to lure the mass retail and institutional market investors back into equities. That speaks a lot about how companies are trying to expand in this condition and their long term view of the market conditions.

Technically, the STI has done a fabulous job over the last 5-6 weeks. It is most technically sound to suggest that the STI will reach a consolidating position by referring to the periods highlighted by the 2 green bubbles. When the 20d MA does cross the 100d (the 20d MA already crossed the other 50/200d MAs) finally in April 2011, it began to consolidate at its 3100 level. MACD was looking to cross down under as is with the set up in this period. Similarly, RSI has seemed to be unable to break the levels and a M occured. 

• MACD - Positive momentum is on the wane. Possibly peaking out in the next 2-3 days before a cross under of its signal line.
• RSI (25d) - Retested 65% level but unable to break through. At article-published-time, the RSI has reduced below 65% again.
• 20d MA - the 20d MA is above 50/100/200d MA lines.
• Major Resistance - 3000 level still seems like a very strong psychological level.
• Volume - A surge in volume occurred yesterday (17/7) which saw the STI consolidate its position at 3020. 

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.

Know Your Investment Appetite: A Lesson on Stock Beta

A good investor/trader knows his personality inside out. He also knows his targeted returns and the risks that he is willing to take in order to achieve them. That means doing a lot of homework even better sinking money into an random stock that may look good on pure 'technical analysis'.

One big homework question to ask ourselves, apart from the most rudimentary risk/reward policy but similar, is the expected Beta correlation between the stock daily returns and that of the STI. Remember that buying into a stock entails accepting its market and idiosyncratic risk. 

Idiosyncratic Risk. This risk lies solely on the actions of the company and its operating risks. In other words, there is nothing to do with market sentiments, just stock-based sentiments. To understand this in another light, consider a downbeat market where a stock can still be increasing in price because it just launched a new product. There is an Alpha measure for this risk, as the % improvement in prices whenever something happens could much more than another company's. That is the inherent idiosyncratic risk or volatility we have to stomach. 

Market Risk. The former is the one in discussion today, measured by the stock's Beta value. In a market rally, we expect stocks to be buoyed in prices because market sentiments are improving. That means, we are seeking to profit the most out of this market rally and therefore seeking to harness stocks with high Beta values. That will give our money the highest possible 'virtual leverage'.

Below is a chart provided by SGX MyGateway entailing all the Beta values for the STI component stocks and their YTD total returns. Take note that the prices are correct only until 21st May from year start.

Source: SGX MyGateway

In short, ceteris paribas (assuming all idiosyncratic risks are equal; when in fact they are definitely not, so some stocks with high beta may have a lower total risk/volatility than another that may have a very high idiosyncratic risk)

1. In a market rally, trade highest Beta
2. In a downbeat market, trade the lowest Beta (defensive stocks)
3. For portfolio asset allocation, mix stocks with generally high beta (to outbeat the market) while averaging out their Alpha (idiosyncratic risks)

For the interested, I have included some details on how you can also calculate these Alpha and Beta values yourself using MS Excel, Yahoo Finance (for data)

1. Download stock data as required (daily/weekly/monthly and time period according to your analysis needs) from Yahoo Finance Quotes.
2. Download STI data as required (daily/weekly/monthly and time period according to your analysis needs) from Yahoo Finance Quotes.
3. Tally both closing prices side by side. Remember, we are trying to compare the % returns for the stock in question and the STI across each trading day so the data must match.
4. Weed out days that do not tally. Yahoo Finance usually has data that are missing so there may be a need to match the trading days manually. In this light, it is inadvisable to be dealing with daily prices over a huge range. Even if there is that need, pay attention that a stock beta and alpha may vary over time periods and market psychology so my advice is to keep it to last 2-3 years maximum.
5. Calculate returns in % (in this case, for illustration, I have calculated and compared daily returns)                                                         
6. Insert scatter plot for both data, with the row for STI % returns on the x-axis (considered, in linear regression analysis, as the independent variable since we are seeking to find out how Capitaland moves relative to the STI) and stock in question % returns on the y-axis.
7. Right click any data point on the scatter plot and select add trendline. Check the boxes (lower portion of the new window that opens) to include the equation and regression coefficient. 
8. Ta-da! The graph as it is ready for interpretation.                                                                                                                                               ..
9. For the illustration above, Beta = 1.446, Alpha = 0.004. This means that (over the period of analysis) when the STI moves 1%, Capitaland will move 1.44%, outperforming the market in good times. This should come as no surprise given the weightage of Capitaland in the STI. Let's not forget the inverse is true too! A downbeat market will see Capitaland retreat by 1.44x STI's amount. In this case, the alpha is pretty low but it does not suggest an absence of idiosyncratic risk (this topic is getting more technical) but an absence of it RELATIVE to the STI. To understand this, you must first appreciate the circular argument logic that encompasses this analysis with Capitaland. As it is a big component of the STI, its idiosyncratic risk has also found its way into the STI portion so there is little meaning in finding out that risk value while comparing Capitaland with the STI. A better approach would be to compare Capitaland with Keppeland in order to find out the relative idiosyncratic values and the argument continues here. 
10. A quick check with the recent rally that started on the 4 June for the STI, Capitaland's prices increased 18.7% (4 June at $2.46 til today 4pm, price of $2.88) whereas the STI saw a 7.1% increase in points (4 June at 2700 til today 4pm, of 2962), clearly validating the high market beta that Capitaland enjoys.
11. Rsquared measures the fit of the straight line to the data set where a value close to 1 indicates a very good straight line relationship fit and hence more confidence to work with the straight line equation as an approximation to the data. In this case, the Rsquared value of 0.64 gives some confidence that the straight line equation can solve our risk analysis problem. 

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PS. Bookmark the historical stock calls section of my blog to stay updated on the latest stock calls and decisions I make on these active/in interest calls. Do not miss out!

STI Index vs Performance of Stock Calls

The STI has risen some 6.9% (2960 on 4 July from 2770 on 25 May). To put it into perspective, by purely punting into an STI ETF on 25 May, one would theoretically have a $69 gain for every $1000 invested. In another light, an annualised 8-9% yield is probably the higher end of what fund managers aim to achieve before calling it a day for the year. In reality, this 2-3 weeks bull run, if you had predicted correctly and invested fully at the start, will have almost gotten you done for the whole year's investment's worth.

Nonetheless, we learned to ease into opening positions and not plonk everything totally in so realistically the yield that we expect to get together with our emotional market timing would be slightly lesser, probably 5-6% on the optimistic side. And in this light, I am pretty satisfied with the performance of stock calls that I have made in this period.

A quick check on my stock calls over this period, excluding those made earlier today, shows 

• a geometric (equally weighted) averaged return of 4.8%
• highest return was a buy call on NOL on 4 June that has a current (4 June 4:40pm latest price) unrealised gain of 10.10%. 
• Capitaland and Ho Bee where both have a realised and unrealised gain of 8.8% respectively
• the most underperforming decision was Kreuz at -3.39%
• winners to losers percentage is 80% (8:2).

On hindsight, satisfied I may be on the risk-reward structure and the guiding trading principles that I have been recursively employing, I still realise that the mathematics show that I have yet to beat the STI benchmark. Which struck a chord with me on the adage "You cannot beat the market" with the efficient market hypothesis. Some truth to it, but I still have firm belief that the efficient market hypothesis is not entirely applicable especially in the Singapore market where liquidity is still an issue across the lesser-known stocks while information flow is not anywhere near the coverage of US stocks. So, I still believe that there can be more to be done in my pre-call mathematical analysis such as a stock's historic beta to the STI that I have yet to properly employ in my articles. I look forward to employing that knowledge to complement my trading principles.

Nonetheless, this is clearly a good start and a healthy validation of my trading principles in making any technical or fundamental analysis recommendations on my blog. 

PS. I welcome more readers to actively bookmark my website for market commentaries and finance-related articles for your financial well-being. 

PS. You can also access/bookmark the RSS feed  Subscribe in a reader or via the navigation bar on the right to receive updates to your browser or news reader. Alternatively, subscribe to the RSS email feed to receive updates in your email inbox. Totally free!
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PS. Bookmark the historical stock calls section of my blog to stay updated on the latest stock calls and decisions I make on these active/in interest calls. Do not miss out!

More Green for STI In Week Ahead?

News have been less seldom so rosy lately especially over weekends when more depressing Europe revelations come about. But this weekend has been really quite a turn around isn't it?

• Ending-week Friday rally to close a really roller-coaster-like ride since year start with most, if not all, indices up YTD.
• Europe is finally showing some urgency and collective will to do something about their mess. 
• Chicago PMI up to 52.9 from 52.7 outperforming estimates of 52.5. Data was released on 29 June Friday.
• China June PMI data, released on 1 July Sunday, stands at an official 50.2, higher than an estimated 49.8, though lower than 50.4 in May. 
• South Korean trade surplus surprised all analysts coming in at $4.96billion for June, the highest surplus since 21 months ago.
• Crude oil prices are up a whopping 9.2% on Friday, rallying back to $84.84 on the NY Mercantile Exchange.

Outlook - Accumulate. All technical indicators are pointing further upside in the coming week(s). After 1 week of slugfest between the bears and the bulls, it is clear who won this week around. However, before getting too euphoric, pay attention to one key resistance that still lies with the 2920 level. It is provided by a major resistance line and validated by the 100d MA line. Expect some rocky days as the STI challenges that level. Once cleared, it could spell another buying spree that we had seen in year start.

• MACD - Trending upwards and crossed 0. Increasing upward momentum is still building up.
• RSI (25d) - Just crossed the 50% level giving more validation of the strength of this run and the potential for more upside.
• 20d MA - the 20d MA is heading upwards.
• 55d MA - the 55d MA was a short-lived resistance where prices retreated in 18-19 June coming close to that level. Broke it on Friday's close. Possible turn of role into a support line.
• Volume - trending up in the last 3 trading days signifying very good buyer (prices are increasing so buyers>sellers) sentiments and participation.

Brace Up for Rocky Week Ahead - STI

Dow posted its second largest day decline in this year on Thursday and the market has been rocked with Spain, Fed's continued wait-and-see measure and China's weak economic data over the week. A hugely rocky trading ensued in the entire week and what does this spell for the STI in the week ahead?

Outlook - Watch. With the quadruple convergence of the 4 key MA lines, the STI is definitely feeling the heat. Weakly overcoming the 200d MA, it had been trading on its support for the entire week and closed almost on the 200d MA line. Short term trend-wise, the 20d MA is upwards sloping with possible higher spells ahead but fraught with plenty of obstacles namely the 50d (or 55d) MA and 100d MA which also coincides with the 2900 key resistance.

(On a side note, the last time 4 key MA lines joined together and prices crossed it was in Oct/Nov 2011 which sent prices skyrocketing in the next 3-4 months; a really key stage of the picture lies in the weeks ahead)

• MACD - Has increased tremendously over the last 2 weeks and there are signs of some possible wane in the positive change in investor sentiments. Nonetheless take note that MACD has yet to cross the 0 line so things are still fragile as it is looking.
• RSI (25d) - Having some difficulties crossing the 50% line.
• Bollinger Bands - Prices been perched on the upper bollinger band for the last 3-4 trading days.

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.

Never Let Emotions Overtake Judgement - A take on STI

It is so tempting to make a call that the market sentiments are getting better isn't it? But before you start declaring so, the market turns downwards the next day again. Day and day, you wait to make the call that indeed things are getting better. Has the day arrived when you can claim victory?

The answer is obviously no. The market has almost given up gains obtained on Monday and Tuesday in the last 2 trading days. We know very well that Greece elections is scheduled on 16 June; Spain has been a huge drag on the EU under the shadows of Greece while Italy has seemingly gained some better foothold of its debts; China has been slowing down albeit insufficiently to warrant a timely stimulus that has been on the mouth of many lately. Nothing has changed today as it has 4 weeks again hasn't it?

The STI chart speaks almost the same language as the Dow weekly chart as I have posted a few days earlier. 

• MACD - charging downwards with little inclination that it will be changing direction anytime soon. In fact, MACD has just started going below 0 and there is much more room possibly for downward movement.
• RSI (25w) - has still been hovering around below 50% levels
• Bollinger bands - latest weekly price is still resting nicely on the lower bollinger bands that suggest a possibility of a short term rebound as discussed in the Dow chart 4 days earlier. Prices are also well supported by a major support line.

Technically, there is good evidence pointing to a short term rebound in prices but an overall continuation of the drag in investors sentiment in weeks to come. The problem here has not been the confusion of technical indicators but the internal emotions that drive our judgement. The facts are present to tell us not to trade unless we can make a quick bet and get out of the market. Then we succumb to greed and stick a while longer.

Will we ever learn?

STI Mirroring Dow's Suggestions Too?

Yesterday, I was predicting a bearish reversal in the near term by looking at the negative divergence of the MACD histogram and the signal line of the Dow weekly chart. And today, STI did show some bearish strength that took over the market. Exactly what sort of bearish strength did the STI exhibit today? Should we suddenly go short after 2 months of long positions? 

Well, the answer probably lies with the STI performance today. 

1. The biggest attention grabbing item has to be a gap between Wednesday's candlestick and today's. There is a gap of about 15 points! That is around 0.5% worth of the STI value. Furthermore, studying the 2 months candlestick patterns of the STI, everytime a black(bearish) candlestick appeared, it never appears in a negative gap, except today's. This is the first time a long black candlestick has formed totally below the previous day's candlestick with a gap in between.
2. Downward momentum seems to be building too. Today, we witness the 2nd long black candlestick formed in consecutive days, together with 2 dojis that signify indecision. In market psychology, this is probably the stage where some realisation of a possible bearish trend starts to kick in and multiply. Once more catch on, we might soon see a real downtrend, breaking from the long uptrend we have been enjoying.
3. MACD histogram is negative and increasing. This is the third red bar in three days. MACD and its signal are both reversing direction at the peak and pointing downwards.
4. RSI is trending towards the 50 line pretty quickly.
5. Volumes match the sell down today. In fact, this is the highest volume traded in this entire rally.

Telling? You judge yourself.

Source: Yahoo Finance (click here to go straight to chart)

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.

Dow's Rise is Healthy

Last night, Dow posted a +123 points rise, outstripping the previous day's horrific slaughter of the market. Horrific because it was the first time Dow lost more than 100 points in a day in this year. But it is back above those levels again. I decided to look at its weekly chart to have a better clue of which direction it is heading and if the uptrend is in question as its erratic behaviour over the last 2 days have made me wanted to find out more.

It is clearly showing higher highs and higher lows, plus a strong support line at 12570. The trend is going up and approaching 13000 mark but of course, the trend does seem to show a slowdown. Volumes have been steadily declining so would not suggest making any market entry at this point in time unless Friday's market is equally stellar. Still lots of potential tripping points ahead.

However, as for its rise, it does not seem to be ending its trend still. RSI and MACD are nicely trending up with RSI having strong support line.

I believe 13000 is close by. But not without hiccups.

Why Trading Requires Discipline Not Emotions

You can be a terrible fan of the bulls yesterday, but did your support waver given the market performance on Thursday? A (6 weeks) unprecedented scene of loss -34.48 points by the STI and a huge black candlestick is enouhg to scare any investor/trader and put him on his seat waiting to get out of this hugely overdue correction (if it was/is going to unfold).

But by tonight, Dow has, at current time of writing this blog post, amassed a staggering +112 points. I admit that I was, too, cautious in the whole of Thursday, contemplating a correction and liquidating but I thought most of my portfolio were doing -1% and it seemed pretty strong until the last 20minutes of STI trading when all it all went haywire and I was not monitoring the market, and so did not execute trades.

Then I went home to look at the STI for proper, clearer analysis. This was what I saw.

Assuming STI follows Dow's performance and stages a rebound tomorrow, it will become obvious that this is yet another higher low situation. As for higher high, it really depends on the market's stomach for riskier pricing to break the 3000 barrier that we have seen only weakly taken over on Wednesday.

I am still bullish about the STI and Singapore stocks in general. The market took a correction today, far bigger than that of other Asian markets also because of its stellar performance over the last week compared to the rest.

I am less worried now.

Lunch Thoughts about the STI

I awoke to the news of the Greek resolution and half expected the stock market to be in good action today. But I was wrong. A loss of investor interest still seems to be a spill over from Friday's market action. Here's the market chart last updated on Friday.

If you notice, the trend is very well supported on the diagonal support line and current STI is at 2970 points thereabouts. Very very healthy uptrend trend still. However, in the next few days we might expect more market inactivity (no, the uptrend is still intact) possibly due to profit-taking etc.
RSI seems to be trending downward, breaking trend and moving into more 'safe' region below 70. Expect it to rebound at around 55-60 ish since there's support (dotted blue).
MACD histogram is negative which is also another indication of a pullback/market inactivity. But signal and MACD still in positive region confirming the uptrend is intact.