Will STI go up this week?

SOMETHING TO THINK ABOUT: All the yawning gaps during the Sept-Oct 2008 crash from 2763 to 1474 have been filled but there is still another 670 points to go to last year’s opening high of 3371 from 2700. There were 3 occasions when 2750 acted as support and resistance last year. First after Jan 2008 600-point crash from 3370 to 2747 followed by a strong rebound to 3130 and another plunge to 2746 in March. This was followed by another rally to as high as 3270 before the next stage of market collapse began, accelerating by Sept from 2763. But with the clear V-shaped recovery underway, the STI should test 2750 and higher levels as indeed this year’s market behaviour has a significant resemblance to the 1999 post-Asian crisis super-bull run. It is highly unlikely that a new record above 3831 can be seen this year unlike in 1999 when the pre-Asian crisis high around 2150 was broken and the STI topped up at a new peak of 2608 in Jan 2000, 15 months after it bottomed out at 800 in Sept 1998. Although the latest bull run is only 5 months if measured from March low of 1455 or 9 months from last Oct low of 1474, investors can be expected to start worrying very soon about the short term sustainability of the bull run which has not seen 5-8% pullbacks since June and early July. The earnings season will end in the next couple of weeks and while anticipation of better than expected results had fired up the market, consolidation should soon set in to in second half of August. It may not be worth to wait for 2750 to be tested first as the STI is expected to test its half way mark of 2643 and 2608 before it moves higher from 2700-2750. A pullback from 2750 to 2600 is a mere 5% and it is even a smaller drop of 3.7% from 2700 to 2600. The market may continue to offer exciting trading chance in S-chips and laggard penny stocks during the relatively lull period from mid-August to early Oct before the next earnings season crops up around mid-Oct. Will there be a repeat of the past 2 years’ Aug to Nov market scares? With signs of earnings, economic and property market recoveries gathering pace in the months ahead and hopefully a peak in retrenchments, there should not be cause for worry of a 15-20% plunges during this volatile period. With the strong momentum built up in recent weeks and heavy institutional buying from STI 2300 to 2500, no less than a target of 2900-3000 by early 2010 would whet their appetite. Thus pullbacks to 2600 offer buying chances with more aggressive buying around 2500-50. A fall from 2700-2750 to 2500-50 will mean a 5 to 9% pullback but even if a 10-12% correction sets in, support should be very strong around 2400, underpinned by the 38.2% Fibonacci mark of 2363.

Hi Sean Ng, Good to hear your views. Yes I would agree equities are risky; thus we have to be fully aware of what we are investing in. That said, as long as we purchase at low valuations, where expectations of growth are low, this is where we get our margin of safety in case something goes wrong. We can stick to blue chips or ETFs if we do not like the hassle of doing our own research. Good luck !