With reference to my earlier write-up citing that “Volatility in the market is among the lowest in 118 years…” (click HERE), I guess the old saying is still true. i.e. “Be careful of what one wishes for”, especially in the equity markets!
Global indices have recently tumbled at least 6% since their recent high. Will markets fall further?
S&P500 closed at 2,682
S&P500 has swung from an intraday high of 2,873 on 26 Jan 2018 to touch an intraday low of 2,593 on 6 Feb 2018. 20D and 50D exponential moving averages (“EMAs”) are turning downwards. Other indicators, such as OBV, MACD and RSI (naturally) have weakened in tandem with the sharp slide. RSI closed at 37.5 on 7 Feb 2018 which is not oversold yet. ADX closed at 47 amid negatively placed directional indicators. Volatility has picked up with daily average true range (“ATR”) of around 37 points.
Based on Chart 1 below, S&P500 may take some time to stablise and it may re-test the support area of 2,593 – 2,655. Notwithstanding the likely “weak” chart in the near term, it is still “assuring” that 100D EMA and 200D EMA have not started to decline yet. It is noteworthy that a break below its 200D EMA (currently around 2,556) on a sustained basis is extremely bearish.
Near term supports: 2,677 / 2,655 / 2,631 / 2,593
Near term resistances: 2,715 / 2,722 / 2,751 / 2,764
Chart 1: S&P500 slumped almost 200 pts from 26 Jan 18
Source: Chartnexus 7 Feb 18
Hang Seng closed 30,323
Hang Seng has tumbled almost 3,200 points from an intraday high of 33,484 on 29 Jan 2018 to touch an intraday low of 30,292 on 7 Feb 2018. Similar to S&P500, 20D and 500D EMA have started to decline. The long red candle on 7 Feb 2018 indicates existing selling pressure. Indicators such as OBV, MACD and RSI have weakened. RSI closed at 34.8 on 7 Feb 2018 which is not oversold yet. Volatility has increased significantly with ATR rising to 571 points.
Based on Chart 2 below, similar to S&P500, Hang Seng may take some time to stablise and it is likely to test the support area of 29,397 – 29,820. Notwithstanding the likely “weak” chart in the near term, it is still “assuring” that 100D EMA and 200D EMA have not started to decline yet. A break below its 200D EMA (currently around 28,241) on a sustained basis is extremely bearish. However, this scenario of breaking below 200D EMA on a sustained basis is not likely to happen given the current information.
Near term supports: 30,183 / 29,820 / 29,397 / 28,800
Near term resistances: 30,819 / 30,925 / 31,455 / 31,717
Chart 2: Hang Seng tumbled almost 3,200 points!
Source: Chartnexus 7 Feb 18
STI closed at 3,384
STI has fallen 258 points from an intraday high of 3,612 on 24 Jan 2018 to touch an intraday low of 3,354 on 6 Feb 2018. Unlike Hang Seng and S&P500, STI has started its decline earlier, thus, besides its 20D, 50D EMA, 100D EMA has started to show signs of decline. Indicators such as OBV, MACD and RSI have weakened. RSI closed at 30.2, which is among the lowest level last seen since Jan 2016.
Based on Chart 3 below, I am waiting to see how STI performs in the next 1-2 weeks. I hope that it can consolidate around the support levels of 3,330 – 3,380. A break below its 200D EMA (currently around 3,330) on a sustained basis is extremely bearish but this is not my base case scenario now.
Near term supports: 3,377 -3,380 / 3,368 / 3,354 / 3,341 / 3,330
Near term resistances: 3,405 / 3,420 / 3,444 / 3,464
Chart 3: STI fell 258 points from recent peak to trough
Source: Chartnexus 7 Feb 18
My two cents worth
This market weakness is in line with my market expectations, as I have mentioned in my write-up in January that I have pared most of my equity positions. My personal view is that the period of low volatility which we have experienced for quite some time has at least ended for now. Markets are likely to be volatile, as we try to find new supports and resistances. For example, Dow futures can swing 100 points in minutes.
It is also noteworthy that
A) As markets are going to be volatile, clients or readers have to understand themselves and tweak their own portfolios depending on their personal portfolio size, market outlook, investment horizon, risk profile, returns expectations etc;
B) As mentioned to my clients, we wont know when is the best time to buy or sell. Nobody knows (or at least, I dont know) whether markets will certainly going lower or going to rebound the next day. What we can do is to have a plan, stick to the plan and use the current available info and arrive at a probability weighted judgement call.
Notwithstanding the above, based on current information, I am ready to accumulate and have done highly selective opportunistic trades on certain companies either on weakness, or / and nearer to their results.
Some additional information
For your reference, I have compiled a list of Singapore listed stocks, sorted by total potential return. Table 1 shows the top five stocks with the highest total potential return. (My clients will receive the full compilation of the list via email.)
Table 1: Top five stocks sorted by total potential return
Source: Bloomberg 8 Feb 2018
1. SGD market capitalisation >=S$1b;
2. Presence of analyst target price;
3. Even though I put “ave analyst target price”, some stocks may only be covered by one analyst hence may be subject to sharp changes. Also, analysts may suddenly drop coverage;
4. Analyst target prices and estimated dividend yield may be subject to change anytime, especially after results announcement.
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P.S: Do note that as I am a full time remisier, I can change my equity allocation fast to capitalize on the markets’ movements.
Please refer to the disclaimer HERE