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Ernest’s Market Outlook

Ernest's Market Outlook 7 Dec 15

Dear readers,

U.S market has just notched their ninth weekly gain out of last 10 weeks. However, the same cannot be said for our Singapore market where it is one of the weakest equity market in Asia, in terms of year to date equity performance. This is not surprising as I have mentioned that STI is the weakest chart among Hang Seng and S&P500 two weeks ago. So, what’s next for our markets in the next two weeks?

Read on to find out more…

S&P500 Index

Just to recap what I have mentioned two weeks ago, S&P500 is likely to trade within the range of 2,021 – 2,135.

  • S&P500 index performed in line with expectations. For the past two weeks, S&P500 traded within 2,042 – 2,104 and closed at 2,092 on 4 Dec.

Looking ahead, S&P500’s exponential moving averages (“EMAs”) have compressed and started to pull apart while rising. This is a positive sign but its effectiveness may be partially offset against the weak ADX which continued to fall from 19.0 on 20 Nov to 13.9 on 4 Dec, indicative of a lack of trend. In the next two weeks, S&P500 is likely to trade within the range of 2,037 – 2,135. The eventual measured technical target from the previously mentioned double bottom formation of around 2,173 remains valid. This is a medium term target and is unlikely to attain before the FOMC meeting on 17 Dec. First important support is established around 2,030 – 2,037 but the critical support is around 2,021. To reiterate, a break below 2,021 negates the bullish tinge in the chart. (See Chart 1 below)

Near term supports: 2,075 / 2,056 / 2,037-2,043

Near term resistances are around 2,104 / 2,115 / 2,133 – 2,135

Chart 1: S&P500 likely to continue range trade 2,037 – 2,135


Source: CIMB chart as of 4 Dec 15

Hang Seng Index

Two weeks ago, I mentioned that Hang Seng is likely to range trade between 21,530 - 23,794 given the low ADX.

  • For the past two weeks, Hang Seng traded between 21,907 - 22,803. It did not breach 22,160 on a sustained basis and closed at 22,236 on 4 Dec.

ADX continues to fall further from 15.6 on 20 Nov to 11.7 on 4 Dec. In the next two weeks, Hang Seng may trade within the channel as indicated on Chart 2 below. A break above 22,733 on a sustained basis may indicate the next up move. It is noteworthy that the eventual measured technical target of around 23,820 (due to the formation of the double bottom formation) remains valid, as long as the critical support of 22,160 is not breached on a sustained basis.

Near term supports: 22,160 / 21,720 / 21,530

Near term resistances: 22,535 / 22,733 / 23,031

Chart 2: Hang Seng – likely trades within the channel


Source: CIMB chart as of 4 Dec 15

STI Index

  • As mentioned two weeks ago, I mentioned that STI seemed to be the weakest among Hang Seng and STI and highlighted that 2,940, 2,960 and 2,980 seem to be strong resistances.
  • STI performed in line with expectations. STI touched an intraday high of 2,940 (resistance) on 24 Nov before falling 96 points to an intraday low of 2,844 on 27 Nov.
  • The probability of a downwards move towards 2,787 – 2,827 seems to be >50% in the next few weeks.
  • For the past two weeks, STI continued to fall from 2,918 to touch an intraday low of 2,844 on 27 Nov. It closed at 2,879 on 4 Dec.

To reiterate, based on Chart 3 below, STI continues to be the weakest among Hang Seng and S&P500. All the EMAs are falling. 21D EMA has pulled apart from 50D EMA after converging. ADX is creeping higher from 19.5 on 20 Nov to 21.4 on 4 Dec. This seems negative and my personal view that STI may fall towards 2,787 – 2,827 continues to be valid. A break above 2,940 on a sustained basis negates the bearish tinge in the chart.

Near term supports: 2,846 / 2,827 / 2,797

Near term resistances: 2,911 / 2,921 / 2,933

Chart 3: STI (still) weakest among Hang Seng and S&P500


Source: CIMB chart as of 4 Dec 15

FTSE ST Small Cap Index (“FSTS”)

Two weeks ago, I wrote that FSTS’ measured technical target of around 401 seems likely to be attained.

  • FSTS dropped from 410 on 20 Nov to an intra-day low of 402 on 30 Nov before closing at 406 last Fri.

In the next two weeks, FSTS’ chart looks bearish. Similar to STI, all the EMAs are falling. 21D EMA has pulled apart from 50D EMA after converging. ADX has strengthened from 23.2 on 20 Nov to 33.2 on 4 Dec, indicative of a trend. A break above 420 on a sustained basis negates the bearish tinge in the chart.  (See Chart 4 below)

Near term supports are at 401 / 399 / 395.

Near term resistances are at 408 / 410 - 411 / 416.

Chart 4: FSTS touched 402, 1 point away from my target


Source: CIMB chart as of 4 Dec 15

Before I conclude, just a recap on my technical plays

Below is a compilation of stocks which I have given my measured technical target prices (based on charts) for the past two months.  It is fortunate that all three have met the measured technical target prices. See Table 1 below.

Table 1: Performance of the recent technical plays with technical target prices

Noteworthy points on the above:

  • I first wrote GKE on 16 Oct when it was $0.079. See writeup here. The technical target was first mentioned on 16 Oct 15.
  • I first wrote Innovalues on 23 Oct when it was trading $0.720. See writeup here. The technical target was first mentioned on 23 Oct.
  • I first wrote GSS on 2 Oct when it was $0.079. See writeup here.

Conclusion

I have been cautious for a month plus given the easing momentum in Singapore market. As I am going overseas on 13 Dec, through some purchases and sales, I have tweaked my percentage invested to around 62%. This was down from 77% invested two weeks ago. Notwithstanding the FOMC decision on 17 Dec morning, as previously mentioned to my clients, I am looking at four stocks which I intend to accumulate on weakness. However, I am unlikely to exceed 110% (before I leave for my trip) unless there are indeed some compelling opportunities. (Clients have already been informed on the specific stocks which I am looking at.)

As mentioned previously, readers who wish to be notified of my write-ups and / or informative emails, they can consider to sign up at http://ernest15percent.com so as to be included in my mailing list. However, this reader’s mailing list has a one or two-day lag time as I will (naturally) send information (more information, more emails and more details) to my clients first. For readers who wish to enquire on being my client, they can consider to leave their contacts here http://ernest15percent.com/index.php/about-me/

As I will only be coming back to Singapore on 22 Dec, there will not be any “Ernest’s market outlook” for the week of 21 Dec.

Hereby wishing all my readers a Merry Christmas in advance!

Disclaimer

Please refer to the disclaimer here

 
Ernest Lim
Ernest Lim

Ernest is an avid investor, trader cum remisier. He is a Chartered Financial Analyst® charterholder, as well as, a Chartered Accountant of Singapore. He has published articles on a wide range of topics on finance and investment on his blog http://ernest15percent.com/, ranging from market / sector outlook, technical analysis and fundamental analysis etc. His writeups and comments have been featured in various online and mainstream media such as Bloomberg, Business Times, Lianhe Zaobao, Sharesinvestment, Nextinsight etc.

He has worked at GIC Special Investment and was with Legacy Capital Group Pte Ltd, a boutique asset management and private equity firm, as an investment manager for high net worth clients, after which he went to work as an investment manager before embracing his lifelong passion as a remisier.