STI is about to move decisively

In my last posting, i mentioned 3180 as the level that satisfies the condition of a buy on the STI. Indeed, the index has stayed above this level throughout the week, with relatively high volume but the movement has been relatively cautious. I expected a clear breakout once the level was met, as the previous resistance was cleared. Instead, the trading on last Wednesday, Thursday and Friday showed a pause at 3195. Last week's cluster forms a flag which in typical conditions represents a bullish continuation, meaning that a usual upside outbreak is expected. Since a strong upside is the conventional wisdom, i would be cautious if the index trades below 3177 starting from Monday, as that points towards downside. The momentum has slowed and indicators are screaming 'high risk' for long trades, as they have formed the downward cross from overbought region. For traders holding a long position, i suggest that the small profits be taken if the index trades near 3195 and bounces off.

Fundamentally, the US debt issue could trigger off a round of selling initially should the bonds get downgraded, as the market is likely to equate that with a weak economy. The S&P 500 ended Friday with a close below 1296, which is definitely bearish. I expect the US market to slide and that is likely to washout the fire on the STI, hence my bearish bias.

The debt crisis stage enlarges

For the last two days, the debt crisis curtains have closed on the Europe set and reopened on the next act for the US. The market is in mild caution as the US congress ponder over solutions to alleviate the debt repayment. The figure i garnered from the last check was $800bn in tax raises. The Dollar-Sing exchange has spiked further to 1.20, and Gold is trading above $1600. Jim Rogers must be very happy.

Essentially, the subject in question is the raising of the debt ceiling, the limit that the US can borrow as a nation. The congress has no problems with this action, but is mixed over the method of generating government revenue. The Republicans propose pure spending cuts, while the Democrats propose spending cuts and increased taxes. Either way, the US economy is set to contract if the proposals go through, since the fiscal policies in question work in the opposite direction to the prior loose monetary policies. The economy has been hanging on a thread ever since the subprime, surviving on interest rate cuts and subsequently dollar injects. Based on the weakening outlook and the possible Moody downgrade of US treasury bonds, the USD is likely to head lower. While economic fundamentals suggest that the stock market should not perform, the stock market has actually worked contrary to common sense, rallying higher with each major devaluation of USD. The market is almost behaving like the credit card debtors who heave a sigh of relief every time they manage to clear the month's minimum sum, and tries to avoid looking at the entire sum owed.

While the SnP looks like it is forming a complex head and shoulder's pattern hinting at a huge drop, it could very well turn out to be the start of a major rally based on anything but common sense. Of course, the rallies usually start with a knee jerk reaction from the market towards the downside before the sudden reversal to the relentless climb upwards.

In my opinion based on my layman knowledge, the only way out for the US does seem like a default, followed by the good old hard-reset button. Upon the default of Greece and the ailing US economy, the shining gem is indeed in Asia, especially so when this region holds the largest amount of sovereign wealth. While trade will be affected since US is the largest trading partner with most SEA countries, an investment driven growth could take its place and see Asia emerging as a global power.

STI rallies against all odds

STI proved me wrong by rallying 4 consecutive days to close above 3180. This happened against the backdrop of a renewed aid plan for Greece, bailing out the time bomb yet again. It is hard to make sense of the constant 180 degrees change in fundamental sentiments, but the charts paint a clearer picture. It seems like STI has formed a new channel, indicated by the bottom most support line that i have newly added. The validity will be confirmed by a downside move next week due to upper channel resistance.

The usefulness of this information is that a monday/tuesday closing above 3180 invalidates the new channel, making it a clear case to go long on the index. Otherwise, i maintain my bearish stance on the index. The volume is higher than normal, so it does indicate strength in the rally. To sum it up, long above a higher monday/tuesday close depending on trader comfort, or wait for a setup to short should the next few days go into consolidation.

The meaning of the analysis may appear obvious at the surface level, but it does reflect the underlying principle of technical analysis; to let the market tell you where its likely headed, through the indication of lower/higher trading prices.

Euro Crisis-an uphill struggle for STI

In the previous STI outlook, i mentioned that the 3150 point would be a strong resistance, and failure to clear it would strengthen bearish sentiments. The Euro crisis is worsening and the STI responded with 2 gap downs over 11th and 12th. The breakaway gap signals the start of the downleg, and the price on the 8th was a lower high in this wave, compared to the 4th. In short, the momentum has clearly switched to a bearish one and i believe the downside has just started.

In addition, the cluster of candles from 12th to 15th forms a bearish flag, clearly declining in momentum and trading below the moving averages. The projected target is 3024. Traders should hold back on buying for the time being.

Euro Crisis

The Euro Crisis has reentered the picture, and was the focus of the market last week. The ongoing riots, unemployment and rising prices are damaging to the frail state of the Greek economy. An evidence of this lies in the 2-year government bond yields, which started out at 4.5% in 2009, doubled in 2010 to 9.73% and further spiked to 26.65% in July 2011. The sky high bond yield reflects the state of distrust and low confidence in the Greek economy. The Euro-zone is separated into 2, between those giving money and those receiving.

Any man on the street will know that the crisis is bad, but the extend and implication is less clear. Firstly, the economic growth in the Euro zone in general is expected to be weak, with the PIIGS going into negative growth. The huge amount of funds committed by other Euro zone members will render the own economies vulnerable as their ammo are lessened. The week economic outlook translate into investment funding outflow, causing projects to be abandoned, and jobs lost. The PIIGS members will be forced to cut public spending and raise taxes to finance the debts, a situation that hardly stimulates the economy. It will take a prolonged period of time to claw back to positive growth, assuming that the countries do not default.

Secondly, the Euro will likely take another plunge as the fundamental weakness in the region warrants less demand for the currency. Investor confidence will once again be shaken. The last dip in 2010 caused global indexes to retrace in sync and this time round it is likely to happen again. Gold has been on a mad run hitting an all time high of 1586, indicating how little confidence the public has on the currency and equity markets. At least within this year, i expect the crisis to be a recurrent theme and will not be resolved so easily.

Expert Stock Screener

I am writing a review on the APF Expert Stock Screener, a product by AsiaPacFinance. They have launced a time saving excel based screener that aggregates analyst reports from multiple sources, giving investors and traders the key essentials to make investment decisions.

In a concise format, here are the key features:

-Choose from Singapore/Hong Kong/Malaysia market, just to name a few

-Investment bank and brokerage analyst reports are aggregated and compiled, providing a Fair Value Deviation ( % that represents how much the last traded price deviates from an aggregated Fair Value)

-Highlights if the overall analyst opinion is Undervalued or Overvalued

-Technical analysis % indicator that highlights bullish or bearish stocks based on a mixture of Ichimoku and proprietary perimetersClick here for the youtube introduction

The Good:

This is a valuable tool for investors and traders alike, because this handy screener removes the tedious process of looking through reports and gives the investor and trader the bottom line- The fair value. What more, a smart tweak to garner the deviation from fair value, otherwise known as the Upside or downside potential. This suits the investor well as it summarises in essence which stocks are good, and HOW good.

The technical analysis portion is made up of daily/weekly/monthly % indicating how bullish or bearish the stock is. I appreciate the Excel format of the screener, as i am able to quickly filter out the bullish stocks for trading. While my rules of trading are different from the screener, it does its intended job well- To identify higher potential stocks for me to find good technical setups! This does save a lot of time, cutting the need to sieve through the hundreds of stocks on SGX. Furthermore, the categorisation of stock by industry drops me another clue as to the stronger sectors during the trading period.

The Bad:

The inputs that go into the screener are not accessible to the user, so investors who have developed personal preferences in stock selection will not find this useful. For example, the screener is unable to provide lists based on designated P/E ratio range, Debt/Equity ratios etc. The screener is really about the compilation of overall assessment by analysts, so the user will not know what were the reasons behind the recommendation. As explained earlier, this product suits investors who wants the quick answer and does not have the benefit of time to go through individual reports. There is no right and wrong, but simply if it is suitable or not. Investors embarking fresh onto the learning curve should hook on to the screener if they require advice on their picks.

Similarly, the TA portion is limited to the Ichimoku input, which not all traders may be familiar with. The users will need to do some reading to gain confidence and comfort to rely on the signals generated. That being said, Ichimoku Kinkohyo is widely used by Japanese traders and traders that trade the Nikkei and Yen. It is a proven system and has a rich history behind it. My take is that as traders we should be open to ideas, and give new information the chance to be "innocent until proven guilty". The same system may not work for everyone, but it can be the right one for you.

In conclusion-

The subscription fee of USD70/ 6months breaks down to approximately USD12/month. This is frankly an inexpensive way to gain an advantage in trading. The site offers a 2 weeks free trial, so you can have a test drive before deciding on a commitment. I believe there is little to lose with the free trial offer, as you will only be billed if you decide to sign up after it. Give the Expert Stock Screener a try, you bear little risk as a customer; but you can reap the rewards of carefully selected high potential stocks.

Request for specific stock/index analysis

Good morning, in order to serve my readers better, i am open to any request for stock/index analysis. Feel free to drop me a mail or comment and i will get to it.

Triple Bank Analysis

STI is rallying close to the mentioned resistance of 3150, but the banks are showing signs of a pullback. Notice how UOB led the upward charge on sharp volume on 30th of June, via a gap. The gap has since been closed and the last traded doji formation does not reflect well on the chances of a follow through rally on the STI. Notice how the volume has dipped over the last trading sessions, and the weak rebound that penetrated 19.74 resistance but only to close below.

While the overall trend is still up, the odds point towards a pullback for this leg now.

This is the weakest performing bank over the month, proven by the bearish candle followed by several spinning tops. Friday's rebound is almost negated with a open high- close low trading day, coupled with low volume.

The strongest performer among the three finished the week with a shooting star, reinforcing the overall weakness of the financial sector.

Overall, going by past trends, weakness of the financial sector on a rising index usually foreshadow a decline. With the weak close in the Dow Jones Index, i expect Monday to open slightly below 3150. I would urge traders not to get too excited should the index pierce above 3150 during intraday trading. Rather, it would be wise to observe the close to see if any surge is genuine. I expect Monday's closing to be weak.

Non market related update

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Staying objective amidst newfound optimism

The headlines spelled doom for Greece 2 weeks ago, but as swiftly as they appeared, they have now been replaced with fresh optimism. In the post last fortnight, i picked up a possible rebound, but was not sure where it would lead to. The STI is approaching multiple resistance around the 3140-3150 region, and that could be the turning point for this leg. The past performances in Nov 2010, January and March have turned out to be peaks, with the exception of April. Using the momentum indicators, that is 3/4 hit rate. The emphasis however, remains on the price action and it should be closely watched.

If the index trades above 3150 on high volume, i will take that as a failed short setup and that confirms a bull run from that point. However, a weak performance, defined as multiple closings below day opening prices/ reversal day bar will point the odds towards a downside slide.

Hence, for trading strategy, it is wise to take profits and standby for a short setup. If the upside break occurs, one should be flexible enough to go long.

That being said, the STI has been consolidating sideways for slightly more than half a year now, yet it remains above 3000. With the ongoing weakness in the Euro and US economies, it is without a doubt that Asia is the region on the hot list. The currencies, often an indicator of relative economic strengths, point towards a strong Sing dollar amidst all the uncertainty. The confidence in the economy will spillover to investments and funds flow. I believe after the correction, a strong bull market will emerge.