Last week, all three U.S. major indices (i.e. DOW, S&P500 and Nasdaq) have registered their best weekly performance in years.
Is the recent sell off over? Let’s take a look.
7 observations on the market
- U.S 10Y bond yield is still relatively high at 2.875% (click HERE) vis-à-vis 2.418% a year ago. If it suddenly surges to around 3%, it may fuel another sell off;
Inflation based on several indicators such as core CPI / core PPI released the week of 12 – 16 Feb are rising faster than forecasts. However, market shows limited reaction towards the inflation data released last week. Notwithstanding this, we need time to assess how markets will react to such data in the next few weeks. FOMC minutes to be released on 22 Feb, Thurs morning 3am and U.S. jobs report on 9 Mar 2018, 930 pm are examples of some economic reports to take note;
Although market has sort of stabilised for the week of 12 – 16 Feb, my personal feel is that underlying volatility or / and risk aversion has increased since last year;
Most market watchers especially technical analysts believe that the correction which we experienced recently has done significant technical damage. Technical analysts and some fundamental biased market watchers believe that market is unlikely to stage a V shape rebound;
S&P500 RSI at 51.1 is far from oversold. It seems to have formed a shooting star (See Chart 1 below). I need to assess whether there is any bearish confirmation in the form of a gap down or a long red candle on strong volume in the next few days;
Potential latent risks arising from U.S. politics (see HERE), retaliation risks from other countries due to U.S. trade policies (click HERE) and geopolitical risks (e.g. Italy election on 4 Mar 2018, click HERE) etc are not to be dismissed;
Based on Chart 2 below, my personal view is that STI may face resistance 3,475 – 3,523 in this up-move. STI has appreciated 3.1% from the low of 3,341 on 9 Feb 2018 to close 3,443 on 15 Feb 2018 with help from the banks. The Edge has a bearish view on STI. Click HERE for the write- up.
INDICES OUTLOOK 19 FEB 18
S&P500 closed 2,732
S&P500 tested its 200D EMA of 2,557 on 9 Feb 2018 and rebounded. Based on Chart 1 below, 20D, 50D and 100D exponential moving averages (“EMAs”) have stopped their declines and are slowly turning upwards. Indicators such as OBV and RSI are strengthening. However, S&P500 seems to have formed a shooting star last Friday. Personally, I will assess whether there is any bearish confirmation in the form of a gap down or a long red candle on strong volume in the next few days.
Near term supports: 2,721 / 2,711 / 2,702 / 2,690 / 2,662 – 2,666
Near term resistances: 2,742 / 2,749 / 2,760 / 2,770 / 2,800
Chart 1: S&P500 forms a potential shooting star
Source: Chartnexus 16 Feb 2018
STI closed 3,444
STI has tested the support area indicated HERE and appreciated 3.1% from the low of 3,341 on 9 Feb 2018 to trade at 3,444 with help from the banks. RSI closed 46.1 on last Thursday. Unlike S&P500, 20D, 50D and 100D EMA have not stopped their declines yet. However, the EMAs have slowed their rate of decline. My personal view is that STI may face resistance 3,475 – 3,523 in this up-move. It may not be able to close the gap between 3,491 – 3,523 in the near term on a sustained basis.
Near term supports: 3,432 / 3,420 / 3,406 / 3,398 / 3,355 / 3,340 / 3,335
Near term resistances: 3,462 / 3,470 / 3,475 / 3,491 / 3,506 / 3,523
Chart 2: STI faces resistance 3,475 – 3,523
Source: Chartnexus 15 Feb 2018
FSTS closed 395.5
FSTS has slumped 6.7% from an intraday high of 423.7 on 24 Jan 2018 to close 395.5 on 15 Feb 18. Based on Chart 3 below, it is apparent that FSTS chart is weaker than STI based on the following points:
STI jumped 2% last week whereas FSTS closed flat;
FSTS’ADX has been rising during the slump, amid negatively placed Dis. ADX closed at 39.4. This does not bode well for the chart.
FSTS has slumped below its 200D EMA accompanied with the formation of multiple death crosses;
Near term supports: 391 / 386 / 383 / 379
Near term resistances: 397 / 400 – 401 / 406 / 411
My personal view is that the break below its multi-month trading range 401 – 423 points to an eventual measured technical target of 379. Furthermore, I believe STI has to stabilise, or continue to rise first, before the positive effects will spill over to the small mid cap stocks. A sustained breach above 411 alleviates the bearish view of the chart to some extent.
Chart 3: FSTS is much weaker than STI
Source: Chartnexus 15 Feb 2018
After considering the above outlook on the indices, as well as the aforementioned market observations, I remain cautious on the market and will not be overly exposed to stocks in the near term. My *personal trading plan (subject to change) is as per follows:
I will accumulate stocks which are extremely oversold;
I may accumulate small mid cap stocks to punt on their upcoming results. However, given the weak FSTS’ chart, I am likely to punt nearer to their results with smaller positions.
*Naturally, my trading plan will not be suitable to most people as everybody is different. Readers / clients should exercise their independent judgement and carefully consider their percentage invested, returns expectation, risk profile, current market developments, personal market outlook etc. and make their own independent decisions.
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