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.

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.

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.

Pro-Bailout Groups Give Hope to the EU and Markets

As of 3am Singapore time, exit polls have shown that pro-bailout groups of the New Democracy and Pasok political groups will be able to form a majority coalition ruling government, sending waves of stabilisation, possibly, ahead of further renegotiation of talks.

There are several possible scenarios by tomorrow morning with the Japanese market first to open. Note that the Japanese finance ministry had adopted a wait-and-see policy before tweaking fiscal or monetary policy to further tackle the global slowdown emanating from Europe.

1. Pro-bailout parties win and agree to form the majority
2. Pro-bailout parties win but fail to agree on forming a coalition party.
3. Similar to the above, failure to form a majority.
4. Syriza gains control and Greece reneges on their obligations over the last 2 bailouts.

The first 2 are looking most possible at current time and whatever the case, the short term impact would most likely be to send markets around the world on another bull day. Bull week/rally ahead, it is still questionable given the need for real structural improvements that are really needed as a catalyst for another strong market rally. Let's not forget that Spain has yet to report their audited liquidity required. Several other nations such as Italy are also not out of the woods yet. They are merely obscured in news dedicated to Spain and Greece lately.

Nonetheless once the haze over the political situation in Greece lessens up over the next few days, there will definitely be a clearer market picture and confidence. With central banks showing readiness to act decisively this time to avoid a repeat of any financial crisis, the world is definitely in a much better situation to react. And as it really seems, it is not that bad after all.

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?

Healthy Market Exposure

Thailand, Indonesia and Hong Kong seem to be worth alternatives to investing in Singapore equities and I am terrible bullish about Asia growth fueling inflow of investments.

India, on the other hand, took a huge correction in 2011 but look at the slope of its recovery towards the end of 2011 and start of 2012. Tremendous! Undervalued region that is now up and coming.