FTSE STI closed 2,396.35 for the week ended 5th Jun 08. For the week, STI tested the 2,425 level twice but failing to breakout from there. Similarly, it was also well supported at the 2,300 level. Despite various concern of a correction is due, the upside appeared to be well sustainable. Presently, market is having a tug-of-war between valuation overrun against excessive cash in the sideline. Fundamentally, the high stock prices for most of the blue chips already running ahead of their fundamental ( based on their recently 1Q earnings ) whereas the excessive cash in the sideline appears to be supporting the market from a sharp correction. The much awaited correction might only occur when the excessive cash dries up and that could take weeks to months to be materialized given that the amount of excessive cash is in term of trillion of USD.
Technically, STI 50d EMA is looking to cut up the 200d EMA at around the 2,080 level in which will form a golden cross; bullish in nature and could provide a massive support at that level. The DI pair is positively spaced and with ADX signal hovering around the 40 level, indicating the current level might be sustainable and potentially more upside that could bring STI to level around 2,600. The cautious signals are both the RSI and Stochastic which have already entered the overbought region but yet to show sign of cutting down. The long term and short term GMMA signals are showing STI still on an uptrend. With the upper long term GMMA signal at around the 2,185 level, this could be a first level of support should STI correct down if failing to break the 2,424 level again. Thereby market might be in a consolidation phase between 2,185 to 2,285 before the next movement.
There is definitely a conflicting signals between fundamental and technical point of view at this moment of time. Market appears to be in a cross road in which it has equal chance of moving up or down. As such indexes also trading within a range, exhibits undecisiveness. It could probably take a heavy impact news or events that causes one of them to give way and allow market to move into a consensus level. A correction could see STI moves towards the 2,080 level and a breakout could send STI towards 2,600 level.
With a sideway and volatile market, short term investors/trades are advice to remain cautious and maintained tight cut loss policy to minimize risk exposure. Long term investors especially those who have missed the March 09 price level perhaps could wait for a correction to between 2,080 to 2,285 level to consider first entry or alternatively base on individual stock fundamental price level to enter. Always spread out the purchase at various price levels to reduce possible downside and doing a Dollar Cost Averaging method might be useful.
