SG Market Analysis -- 22nd Sep 08

STI closed 2,559.07 for the week ended 19th Sep 08, down 11.60 points or 0.45% from previous week. The week started of with market reacting badly to the news of Lehman Brothers unable to find a buyer to solve its financial issue ending up filing for bankruptcy and AIG in urgent need of cash for survival. STI suffered sharp drop for as long as 3.5 trading sessions and hitting an intra-day low of around the 2300 level. The tension on AIG despite US Federal Reserve pumping in US$85b in exchange of 79.9% stake in it has created certain degree of fear in Singapore's AIA insurance holders whereby people queuing up to cancel their plans. With news of various central banks like Bank of Japan, US Federal Reserve, European Central Bank, Bank of England, MAS, etc all simultaneously injected more monies into the market, STI staged a 1 day V-shape recovery on 18th Sep 08 from a drop of 100 points to close flattish. Later on, US Government prosposed an almost 1 trillion dollar bailout for all the troubled banks further extend the rally on 19th Sep 08 and help STI to close just a drop of 11.60 points for the week.

Technically, STI is now in a rebound mode with probably strong resistance at the 2700 level; 50d EMA level. The DI+ is moving up to cut the DI- in the ADX chart and as the ADX line is moving towards the 40 level, this could signal the rebound is of moderate strength. MACD signal also showing sign of convergence and MACD histogram moved closer to the zero line now. RSI signal recovered from the 30% level to almost 50% level; indicating the rebound might have certain strength build in it. Stochastic has cut up and move out of the 20% level. This giving indication that in short-term market is on the way of moving up. Technically, a gap was created between 18th - 19th Sep 08 and STI could potentially retreat to cover the gap. Even though, indicators are suggesting a short-term rebound, the downside risk still remain whereby STI could tank again to re-test the 2300 support level.


In the coming week, direction of STI will be again driven by the news and events on the US financial sector. As of now, according to source Bush administration and the Congress is negotiation a US$700b bailout for the trouble finance sector and if that is approved, markets might have some short-term upside probably capped at 2700 resistance. Did the STI hit a bottom at 2300 on 18th Sep 08 ? that the question probably most wonder. Short-term wise maybe but looking at the macroscopic view it may not be. The troubled banks have yet to record their first profit in earning and global economy is still slowly down. The bear market will only come to an end when all the troubled banks starting to record their first profit in earnings and global economy halt its slowly down rate.

For long-term investors with 3 to 5 years time frame, should be looking from fundamental point of view of a counter and decide on various entry prices to slowly collect, spread out the purchase and that could minimize the downside risk quite an amount.

For short-term traders, the current rally might be breakdown soon as there isn't a strong base being built for the past weeks or months that could sustain such a rally. Stay alert and cautious so to avoid being caught.

A reminder to all on 22nd Sep 08 when STI starts trading at 9am, Yangzijiang and ThBev will cease to be one of the FTSE STI component stocks. In replace of them will be Goldenargi and Jardine Matheson.