Our markets have been whipsawed by multiple events, such as rising inflation expectations and bond yields, protectionism (for e.g. Trade tariffs), upcoming FOMC meeting and sudden key personnel changes in the White House etc…
How should we react or trade in current market conditions? Let’s take a look at the market events and the indices’ charts…
5 observations on the market
Fed Chairman Jerome Powell’s first FOMC meeting tonight. A 25bps rate hike is almost certainly expected but markets will be scrutinising what the new Fed Chairman will be saying during the conference;
Based on an article on Washington Post, President Trump may announce tariff package against Chinese products amounting to US$60b by tomorrow (click HERE). This is an event risk which i will try to avoid as depending on the actual tariff announced, the short term impact to the equity market is not clear;
U.S. Politics continue to grab the limelight with some noteworthy personnel changes, such as the removal of Secretary of State Rex Tillerson, departure of economic adviser Gary Cohn etc. In fact, based on an article published on National Public Radio Inc (click HERE), in the first 13.5 months of President Trump’s term, 43% of the top level personnel in the White House have moved. This was more than his four most recent predecessors had after two years.
Although I am not an economist, I believe U.S. 10 year bond yields are likely to continue their climb unevenly in the course of 2018. In other words, there may be periods where the 10 year bond yields may surge in a short span of time which may pressure equities.
Indices’ outlook 20 Mar 18
S&P500 closed 2,717
Based on Chart 1 below, S&P500 seems to be stronger than Dow as
In the recent rebound, S&P500 has reached the high last seen on 27 Feb 2018;
20D exponential moving average (“EMA”) has not compressed with 50D EMA, thus, there is limited risk of death cross formation at this moment;
However, it is noteworthy that 20D EMA seems to be turning down. Amid negatively placed directional indicators (“DIs”), ADX has been sliding and closed at 20.0. Indicators such as RSI and MACD are weakening. MACD has done a negative crossover. Given that S&P500 has broken 2,743, the overall chart is a tad negative. However, S&P500 should find good support around 2,662 – 2,685 in the near term. A sustained break above 2,802 is bullish for the chart.
Near term supports: 2,695 – 2,703 / 2,685 / 2,677 / 2,657 – 2,662
Near term resistances: 2,725 / 2,735 / 2,743 / 2,763
Chart 1: S&P500 – a tad negative after breaking below 2,743
Source: Chartnexus 20 Mar 18
STI closed 3,513
STI staged quite a good recovery yesterday. Amid negatively placed DIs, ADX has slid to 13.2, i.e. This likely indicates that our market may trade sideways in the short term. Barring any significant positive, or negative events, it is likely that STI may continue to trade within the range 3,444 – 3,555 with slightly >50% odds of going to the lower end of the range.
Near term supports: 3,504 – 3,507 / 3,488 / 3,475 / 3,464 / 3,450
Near term resistances: 3,515 / 3,540 / 3,552 / 3,568 / 3,576
Chart 2: STI may trade in the range 3,444 – 3,555
Source: Chartnexus 20 Mar 18
After considering the above outlook on the indices, as well as the aforementioned market observations and coupled with my short term trading mentality (my typical holding period is a couple of weeks to a few months for most of my positions), I remain cautious on the market and will not be overly exposed to stocks at least in the next few days. I am currently only around 43% invested but can raise to >100% with the use of leverage (i.e. CFDs). My *personal trading plan (subject to change) is as per follows:
I may accumulate blue chip stocks which are extremely oversold, or short them, if they are extremely overbought;
I may accumulate small mid cap stocks with potential near term catalysts on weakness;
I may switch out some of my stocks to enter other stocks, should opportunities arise.
*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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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.
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