SG Market Analysis -- 15th Sep 08

STI closed 2,570.67 for the week ended 12th Sep 08, down 3.54 points or 0.14% from previous week. It was another volatile week for STI with beginning of the week, STI rallied 122 points on the news of US Government came in to save Freddie Mac and Fannie Mae but the rally could not sustain in the next few trading days as investors still very cautious on the slowing down of economic growth globally. Commodity and Offshore/Marine counters were again under heavy pressure and later part of the week, it was S-Shares turn to face with heaving selling pressure. Some were due to funds liquidating out of S-Shares. On 11th Sep 08, STI announced revamped of its STI component stocks with Yangzijiang and Thbev being removed from the list and replacing the two were Goldenargi and Jardine Matheson. The changes will be take effect on 22nd Sep 08 when market opens for trading. The selling down for the later part of the week was also due to the uncertainity of the future of Lehman Brothers.

Technically, STI is still on a downtrend and might have an oversold rebound within the next few session but the rebound should not be able to sustain for long as there isn't any solid base support being built during these periods. The DI+ and DI- still negatively placed and with ADX above 20, the downside is posed for moderate strength. MACD signal still in divergence mode and MACD histogram is in the negative region. Stochastic has cut down and hit slighly below 20% level into the oversold region. However, RSI is quite resilient as it still hovering above the 30% level indicating further downside could be fairly limited. The immediate support for STI is around the 2537 level and a breakdown at this level could be sending the STI to 2,350 level. Any upside is capped at around the 2,700 level


STI market is currently waiting for the outcome of the Lehman Brothers issue which should have a solution before market reopens on 15th Sep 08. A good news might provide market with a relief rally. In addition, STI market should also be looking at several US economic data and events to provide some direction in the coming week. On 16th Sep 08, US Federal Reserve would announce its decision on the Fed fund rate and if the outcome is what market consensus, a relief rally would be possible.

For investors who have strong holding power and a time frame of at least 3 to 5 years could consider slowly accumulate fundamentally sound stocks, namely the blue-chips and mid-cap stocks. Valuation at current STI level is relatively cheap. As with previous bear market, buying into fundamentally sound stocks and hold till the return of the bull market will see a great return for the investment.

For traders, current market is doing a buy on dip and sell into strength trend as such chasing the price if stocks rally up would increase the risk and look unjustifable. In buying on dip, it is also wise to spread out the buy to reduce the downside risk while waiting for the rebound to sell into strength.