Ernest’s market outlook 23 Nov 15

Dear readers,

3QFY15 corporate results have ended. We are approaching Dec which is typically a quiet period for the stock markets. In view of the potential tepid trading volumes, what’s next for our markets in the next two weeks?

Read on to find out more…

 

S&P500 Index

S&P500 index performed in line with expectations. Just to recap what I have mentioned two weeks ago,

a) S&P500 seems relatively stronger than HK and Singapore markets;

–> S&P closed 3.3% higher for the week, the best weekly gain in 2015 and outperformed Hang Seng and STI. Hang Seng and STI closed +1.6% and -0.3% respectively.

b) 50D, 100D and 200D EMA may also form golden crosses with one another in the next one month;

–> 50D EMA has just formed golden crosses with 100D and 200D EMAs on 17 Nov. 100D EMA has also just formed golden cross with 200D EMA on 17 Nov.

c) The eventual measured technical target is around 2,173. A sustained break below 2,021 negates the bullish tinge in the chart.

–> I previously pointed 2,021 as a critical support, failing which, the bullish tinge may be negated. On 16 Nov, S&P500 fell below 2,021 (the first since 21 Oct) but closed 1.5% higher on the same day. The buying continued and S&P500 ended the week at 2,089, the best weekly gain in 2015.

Looking ahead, it is assuring that S&P500 managed to bounce off the key support level of 2,021 (the neckline of the double bottom formation) and closed at 2,089 on last Fri. The eventual measured technical target from the previously mentioned double bottom formation points to around 2,173. This is a medium term target and is unlikely to attain before the FOMC meeting on 17 Dec. ADX continues to fall from 27.1 on 6 Nov to 19.0 on 20 Nov. Given the chart setup, S&P500 is likely to range trade between 2,021 – 2,135 in the next two weeks. A break below 2,021 negates the bullish tinge in the chart. (See Chart 1 below)

Near term supports: 2,070 / 2,065 / 2,038 – 2,044

Near term resistances are around 2,095 / 2,117 – 2,120 / 2,133 – 2,135

Chart 1: S&P500 outperformed HK & Singapore

S&P500 chart as of 20 Nov 15

Source: CIMB chart as of 20 Nov 15

 

Hang Seng Index

Two weeks ago, I mentioned that

a) Hang Seng Hang Seng’s momentum seems to have eased. It is likely to develop a range trading pattern around 21,530 – 23,936;

–> Hang Seng’s ADX continues to ease from 22.0 on 6 Nov to 15.6 on 20 Nov, indicative of a lack of trend. For the past two weeks, it has traded between the 21,958 – 22,981.

b) A break below 22,160 negates the double bottom chart formation;

–> Similar to S&P500, I have pointed out that Hang Seng’s critical support is around 22,160, failing which, the bullish tinge may be negated. On 16 Nov, Hang Seng fell below 22,160 (the first since 7 Oct) but closed subsequently higher in the next few days. It closed at 22,755 on last Fri.

In the next two weeks, against the weak ADX, Hang Seng is likely to range trade between 21,530 – 23,794. 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. I wish to emphasise 23,820 is likely to be a medium term target and unlikely to attain in the next two weeks. (See Chart 2 below)

Near term supports: 22,539 / 22,296 / 22,160

Near term resistances: 22,839 / 23,176 / 23,500 – 23,557

Chart 2: Hang Seng – likely sideways trading

HSI chart as of 20 Nov 15

Source: CIMB chart as of 20 Nov 15

 

STI Index

a) As mentioned two weeks ago, I mentioned that STI’s momentum seems to be easing and may trade sideways in a range between 2,827 – 3,150 in the near term. STI closed at 3,010 on 6 Nov.

–> STI performed in line with expectations. It fell another five consecutive trading days from 9 – 16 Nov and touched 2,886 on 16 Nov with a cumulative loss of 124 points, before staging a small minor rebound on 16 – 17 Nov.

b) On 16 Nov early morning, I have sent a brief email to all clients mentioning that STI’s near term supports are at 2,883 / 2,851. Clients with CFD can consider to punt for a small technical rebound. However, the small technical rebound is likely to meet strong resistance around 2,960 – 3,000. In the next 1-2 months, there is a possibility that STI may fall further to around 2,787 – 2,827

–> STI touched a low of 2,886 on 16 Nov and immediately jumped 55 points, from the intraday low of 2,886 on 16 Nov to touch 2,941 on 17 Nov before trading sideways. It closed at 2,918.

Based on Chart 3 below, STI seems to be the weakest among Hang Seng and STI. 21D EMA has failed to stage a golden cross with 50D EMA and has since moved further and downwards away from it. The break below 2,940 and failure to cross above 2,940 on a sustained basis is a negative. The recent chart formation seems to be a head and shoulder pattern. A break below 2,940 points to an eventual measured technical target of around 2,787. Besides 2,940, 2,960 and 2,980 seem to be strong resistances too. Thus, the probability of a downwards move towards 2,787 – 2,827 seems to be >50% in the next few weeks.

Near term supports: 2,883 / 2,851 / 2,827

Near term resistances: 2,940 / 2,960 / 2,980

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

STI chart as of 20 Nov 15

Source: CIMB chart as of 20 Nov 15

 

FTSE ST Small Cap Index (“FSTS”)

Two weeks ago, I wrote that FSTS may range trade between 410 – 439 amid easing indicators.

–> FSTS dropped from 426 on 6 Nov to close at 410 on 20 Nov which was my previously mentioned support.

The break below 418 points to an eventual measured technical target of around 401. ADX has strengthened from 20.2 on 6 Nov to 23.2 on 20 Nov. 21D EMA has failed to stage a golden cross with 50D EMA and has since moved further and downwards away from 50D EMA. This measured technical target of around 401 seems likely to be attained. (See Chart 4 below)

Near term supports are at 410 / 401 / 395.

Near term resistances are at 418 / 420 / 422 – 423.

Chart 4: FSTS may head towards 401

FSTS chart as of 20 Nov 15

Source: CIMB chart as of 20 Nov 15

 

Conclusion

In a nutshell, I reiterate my cautious stance especially for our Singapore market due to the following factors:

a) Singapore’s charts (STI and FSTS) are weak. In addition, after our lackluster 3Q corporate results, some houses have turned cautious in their asset allocation for Singapore;

b) Dec (at least for a large part of Dec) is typically a quiet period with lower liquidity which may result in higher volatility.

c) The potential rate hike in Dec may cause some funds outflow back to the U.S.;

d) Importantly, I will be leaving for my holidays in mid Dec thus its best to be cautious.

For my personal equity allocation, after meeting some extremely interesting companies (previously on my watch list which I mentioned I was waiting to accumulate on weakness two weeks ago) over the past two weeks, I have raised my equity allocation cautiously to around 77%. During this period, I may tactically raise my equity allocation but it is unlikely to exceed 110% unless there are indeed some compelling opportunities. (Clients have and will be told on the specific stocks after my research.)

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/

 

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