Dear readers,

S&P500 has jumped 5.2%, or 95 points from the intraday low of 1,812 on 20 Jan 2016 to close at 1,907 yesterday. Has market reached the bottom and is due for a V shape reversal, similar to Sep 2015?

Read on to find out more…

 

S&P500 Index

Just to recap what I have mentioned on 9 Jan 2016 (read here), I wrote “the chart has turned bearish due to the formation of death crosses with rising ADX. In addition, S&P500 has broken a long term uptrend established since Nov 2011”

–> S&P500 continued to display its bearish price performance by falling 110 points, or 5.7% from 1,922 on 8 Jan 2016 to an intraday low of 1,812 on 20 Jan 2016, before rebounding 5.2%, or 95 points to close at 1,907 on last Fri.

I also mentioned “RSI has dipped to 29.7, the lowest since 26 Aug 2015 which may trigger a mild rebound as oversold pressures mount.”

–> S&P500 only managed to rebound from 1,922 on 8 Jan to an intraday high of 1,950 on 13 Jan 2016 before slumping to close at 1,907 on last Fri.

Looking ahead, S&P500 has become very volatile with large intraday swings. As mentioned two weeks ago, the overall chart has turned bearish due to the formation of death crosses with a rising ADX. ADX continued to rise from 22.2 on 8 Jan 2016 to 38.0 on 22 Jan 2016, indicative of a strong trend. RSI has risen from 29.2 on 20 Jan 2016 to 40.0 on 22 Jan 2016, thus it is no longer oversold. As the overall trend is bearish in the medium term, any rebound is likely to be short lived and arrested around the near term resistance region of around 1,940 – 1,946. Based on the current chart interpretation, the bearish outlook of the chart is negated with a sustained close above 2,040 – 2,050 (See Chart 1 below).

Near term supports: 1,894 / 1,875 / 1,867

Near term resistances are around 1,915 / 1,940 – 1,946 / 1,970

Chart 1: S&P500 rebounds 5.2% from the intraday low of 1,812 on 20 Jan

Source: CIMB chart as of 22 Jan 2016

 

 

Hang Seng Index

On 9 Jan 2016, I mentioned that “Hang Seng broke the lower line of the downward channel and has a bearish tinge to its chart. A bearish outlook is confirmed if it breaks 20,300 – 20,368 on a sustained basis.”

–> It was indeed bearish after Hang Seng broke 20,300 – 20,368 on 11 Jan 2016 with a gap down. It continued to slide 1,766 points, or 8.7% to touch an intraday low of 18,534 on 21 Jan 2016, before closing at 19,081 on last Fri.

The medium term outlook on Hang Seng’s chart continues to be bearish. All the exponential moving averages (“EMAs”) are sloping downwards with a rising ADX. ADX has risen sharply from 19.4 on 8 Jan 2016 to 39.8 on 22 Jan 2016, indicative of a strong downtrend. RSI closed at 32.7 on last Fri which is not oversold. The break below 20,305 points to a measured eventual technical target of 17,180. This represents potential but does not mean it’s a definite outcome. Meanwhile, the strong bearish chart outlook is alleviated to a certain extent if Hang Seng can close above the strong resistance at 20,305 – 20,408 on a sustained basis. (See Chart 2 below).

Near term supports: 18,534 / 18,304 / 18,054

Near term resistances: 19,660 – 19,693 / 19,787 / 20,116 – 20,170

Chart 2: Hang Seng – strong downtrend

Source: CIMB chart as of 22 Jan 2016

 

STI Index

I wrote that “STI’s important support is around 2,698 – 2,740. It will be negative if it breaks on a sustained basis.”

–> It was indeed true that once STI broke the important support of 2,698 on 12 Jan 2016 on a sustained basis, the subsequent price performance was bearish. It subsequently fell another 169 points, or 6.3% to touch an intraday low of 2,529 on 21 Jan 2016, before closing at 2,577 on 22 Jan 2016.

I published my market outlook on STI on 17 Jan 2016, last Sun on my blog noting the sharp drop in the STI; STI’s & our three local banks’ valuations and a list of oversold stocks. (Please see here for the write-up.) I mentioned that there may be a technical rebound in the near term as oversold pressures build. Nevertheless, the technical rebound, if any, is unlikely to be a trend reversal.

–> STI seems to be staging a potential near term technical rebound starting from last Fri where it closed 1.8% higher at 2,577.

Looking ahead, similar to Hang Seng and S&P500, the overall chart outlook continues to be bearish in the medium term. There may be short term technical rebound but it is likely to meet with considerable resistance at 2,698 – 2,740 (likely 2,698) and is unlikely a trend reversal. The bearish chart can be negated to a certain extent if it can close above 2,698 – 2,740 on a sustained basis. (See Chart 3 below)

Near term supports: 2,529 / 2,498 – 2,500 / 2,488

Near term resistances: 2,630 / 2,664 – 2,670 / 2,698

Chart 3: STI formidable resistance at 2,698 – 2,740

Source: CIMB chart as of 22 Jan 2016

 

FTSE ST Small Cap Index (“FSTS”)

On 22 Jan 2016, I wrote that “FSTS seems to be stronger on a relative basis. Firstly, FSTS’ did not form a lower low in Sep 2015 (vs Aug 2015) whereas S&P500, Hang Seng and STI did. Secondly, FSTS is still about 7 points away from its intraday low on 15 Dec 2015 low whereas both Hang Seng and STI are re-visiting Sep 2015 lows.

–> FSTS indeed has greater relative strength than STI. Firstly, since the start of 2016, FSTS has dropped about 7.0% vs the 10.6% drop for STI. Secondly, FSTS has not breached the intraday low of 368 on 25 Aug 2015. In fact, FSTS’ intraday low on 21 Jan 2016 was 371. However, STI has touched more than a 4-year low with its intraday low of 2,529 on 21 Jan 2016.

I also wrote that “We have to observe whether FSTS can successfully test the support of 391. A sustained break below 391 is negative.”

–> This is true. FSTS broke below 391 on 14 Jan 2016 and subsequently fell another 20 points, or 5.1% to touch an intraday low of 371 on 21 Jan 2016.

With reference to Chart 4 below, FSTS’ indicators such as RSI and MACD have exhibited bullish divergence. Notwithstanding FSTS’ greater relative strength vs STI, FSTS’ overall chart continues to be on a downtrend as depicted by its EMAs and rising ADX. ADX has risen from 22.1 on 8 Jan 2016 to 38.0 on 22 Jan 2016. A sustained break below 368 is negative whereas a sustained break above 392 should reduce some of the bearishness to a certain extent.

Near term supports are at 371 / 368 / 365.

Near term resistances are at 385 / 389 / 392.

Chart 4: FSTS continues to have greater relative strength vs STI

Source: CIMB chart as of 22 Jan 2016

 

Conclusion

Over the past two weeks, I have done several trades on a few stocks due to their ultra oversold nature. I have also increased some exposure on my core holdings which raised my current equity allocation from 143% on 8 Jan 2016 to approximately 158%. (My clients have already been notified on 23 Jan via email what I am holding at the current moment. Yep, I have a high risk tolerance to be 158% invested in such volatile times.) Nevertheless, I am likely to pare my holdings in the next two weeks.

For those who are little invested and believe that market may be going higher, and are looking to shortlist some stocks for potential investment / trading, I have sorted the top sixty stocks by total potential return using Bloomberg’s data as of 22 Jan 2016. Table 1 shows the top five companies sorted by total potential return. (See Table 1 below). I will be sending the entire list of sixty stocks to my clients and those readers on my website sign up list. Readers can consider to sign up at http://ernest15percent.com so as to be included in my mailing list.

Table 1: Top 5 companies sorted by total potential return

Source: Bloomberg as of 22 Jan 2016

With reference to Table 1 above, it is noteworthy that the source of my data is from Bloomberg. Personally, I do not know how updated the above consensus target price is. For example, with the sharp drop in oil, I am not sure whether the consensus target for Ramba Energy should still be $0.620. Readers should exercise independent judgement and / or seek to verify the data when they are unsure.

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/

Lastly, Some of you wonder how I screen and decide which companies to write. To understand more about my basis of deciding which companies to write, you can download a copy of my eBook available on my website here.  

 

Disclaimer

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