STI slumps 198 points after hitting a decade high of 3,642 on 2 May! (30 May 18)

With reference to my market outlook HERE posted on 11 May 2018, I mentioned at that time that I have started to sell into strength, as I am cautious on the overall market. Clients would have been aware / notified that I have already reduced my percentage invested to <60% early last week.

STI has since dropped 126 points from 3,570 on 11 May 2018 to close 3,444 on 30 May 2018.

For those who wish to accumulate on weakness, I have compiled a list of stocks here, using Bloomberg’s data as of 30 May 2018. The criteria for compilation (outlined below) is my personal criteria and is straightforward.

a) Market capitalisation >= SGD500m;

b) Presence of analyst target price.

Please refer to Table 1 below showing the top five stocks sorted by total potential return. It is noteworthy that the list is compiled using solely Bloomberg’s data, coupled with my personal criteria. i.e. I am not familiar with the stocks, hence please do your own due diligence. My clients will receive the full list of stocks in their emails.

Table 1: Top five stocks sorted by total potential return

Table 1_Top five stocks with the highest estimated total potential returns 30 May 18

Source: Bloomberg 30 May 18

 

STI chart outlook 

Although STI manages to breach its Jan 2018 high on 2 May 2018 with an intraday high of 3,642, STI has subsequently experienced significant profit taking. It dropped 198 points or -5.4% from an intraday high of 3,642 on 2 May 2018 to close 3,444 on 30 May 2018. STI seems to have weakened vis-à-vis S&P500. It has breached below its 20D, 50D and 100D EMA. The selling seen on 30 May 2018 is rather fierce with a gap down.

ADX has started to rise, albeit from a low base of 11.7 on 22 May 2018 to close 14.3 on 30 May 2018. Although there is no trend yet (base on the ADX reading), directional indicators are negatively placed. Before the 126 points drop from 11 May 2018 to 30 May 2018, indicators such as MACD, MFI, OBV and RSI have already formed bearish divergences. RSI closed at 35.7 on 30 May 2018.

Near term supports: 3,434 / 3,421 – 3,424 / 3,384 / 3,369

Near term resistances: 3,473 / 3,492 / 3,514 – 3,519 / 3,526

Based on Chart 1 below, given the low ADX amid negatively placed DIs, STI may trade sideways with a downward bias. It may potentially test 3,384 – 3,424 in the near term. A sustained breach above 3,537 negates the bearish tinge in STI’s chart.

Chart 1: STI has slumped 198 points since hitting a high of 3,642

STI chart as of 30 May 18

Source: InvestingNote 30 May 2018

 

Some noteworthy events this week

a) U.S. Vs North Korea talks – Differences remain, especially on what denuclearisation entails and when U.S. will provide economic relief to N Korea in exchange for denuclearisation –> See the informative article HERE;

b) U.S. Vs China – Commerce Secretary Wilbur Ross is going to discuss U.S. trade with China this weekend. Heading towards the discussion this weekend, there seems to be some intensifying debate between U.S. And China… See article HERE;

c) U.S. Vs EU – –> To recap, President Donald Trump imposed a 10% tariff on aluminium and 25% tariff on steel imports on 23 Mar 2018. However, he temporary exempted countries such as Canada, EU, Mexico etc. President Trump is expected to make a decision by Friday (can be as soon as today) on whether he is going ahead to slap tariffs on EU. He may also announce whether Canada and Mexico continue to be exempted. See HERE;

d) Italy concerns – Italy fears receded yesterday due mainly to two events. Firstly, two anti-establishment parties were renewing efforts to form a coalition government. If they succeed, this may prevent Italy from holding elections (widely expected to be a referendum on Italy’s role in Europe). Coupled with a smooth auction of 5Y and 10Y Italy bonds, investors are reassured to some extent. However, Italy’s political condition remains fragile…

e) Spain confidence vote Friday: Spain’s Prime Minister Mariano Rajoy will face a confidence vote this Friday. This may be another event risk in addition to the multiple event risks;

f) Economic data – U.S. Monthly jobs report will be out this Friday. This should provide some insight into U.S. jobs situation and wage pressures etc. Wage pressures may be of noteworthy concern to market as it may be sensitive to any signs of inflation picking up at a more rapid pace than expected.

P.S: The above list is not exhaustive…

 

Conclusion

Due to the fluid nature of the above events, they may pose significant event risks. For myself, in the next couple of weeks, I probably may nimble some stocks with potential near term catalysts or / and some extremely oversold stocks with a trading mentality.

*Naturally, my market outlook and trading plan are subject to change as charts develop. My plan will likely not be suitable to most people as everybody is different. I do not know whether markets will definitely rebound, or continue to drop. However, I am acting according to my plans. In other words, my market outlook; portfolio management; actual actions are in-line with one other. Notwithstanding this, everybody is different hence 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.

 

Readers who wish to be notified of my write-ups and / or informative emails, can consider signing up at http://ernest15percent.com. However, this reader’s mailing list has a one or two-day lag time as I will (naturally) send information (more information, more emails with more details) to my clients first. For readers who wish to enquire on being my client, they can consider leaving their contacts here http://ernest15percent.com/index.php/about-me/

P.S: Do note that as I am a full time remisier, I can change my trading plan fast to capitalize on the markets’ movements.

Disclaimer

Please refer to the disclaimer HERE

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