Firstly, the disappointment in the US job data was because the private sector added lesser job than expected as most of the employment in May was mainly from Government employing temp job. The big question is have all expecting too much from the US employment situation ? If we take a look at past quarters earning from the US banks, they did roll out some beautiful set of earning but most of the profit was from investment and not loan income. With the US banks still struggling to get the loan income revenue this mean US companies ( big or small ) are still cautious in hiring and hence why should we expect the employment situation from private sector be accelerating ? If the company does not have the cash to expand, how can the company hiring more head counts ?
Most of the funds presently have shifted to overweight on bonds as uncertainties arise from the European debt issue. With US unemployment rate still weak and European debt issue still fill with uncertainties, various central banks will like to remain low interest rate as long as inflation does not get out of hand. With low interest rate around, the excessive money still circulating between the equity and bond markets. Once those uncertainties clear and valuation becomes cheap while fundamental remains intact, the bond funds should be shifting back to equity.
On the view of China market has fallen the most this year, this could be concerned of whether the Chinese Government has their policy over tighten in order to keep inflation in check. With over tightening measures, this will affect a slower growth in the second half of the year and the market could be factored that in and caused the drop lately.
From the first look and with US markets fell at least 3% last Friday, STI will be on a downtrend for this coming week. However, if we analyzed further, STI appeared to be having a RSI and Stochastic divergence at the moment. RSI having a higher low and Stochastic having a triple bottom while index got onto a lower low. Such divergence could be a sign of potential reversal. There also appear to be an ascending triangle forming for STI at the moment with STI seemed to have breaking out of the ascending triangle and this coming week could be doing a backtest to test the breakout point. Ascending triangle in nature is bullish. Looking at the GMMA, the short-term GMMA lines are being compressed at the moment and starting to trend up while the long-term GMMA lines still yet to show any sign of compression. What to look out for at the moment is when the long-term GMMA lines being compressed. If the long-term GMMA lines are being compressed with the short-term GMMA lines trending up, the next move in the index will be an uptrend once the long-term GMMA lines expand. STI could be in the process of base formation/consolidation within the range of 2,700 - 2,820. The 200d EMA line is at 2,740 which is also the "ascending triangle breakout level" and STI could revisit this level this week to complete the "backtest of breaking out of ascending triangle".
A cautious view is if the so-called consolidating range ( 2,700 - 2,820 ) breaks down, STI could expect downside to 2,580 or even 2,400.
For long-term investors, if the market is indeed currently under the base building/consolidating process for further upside, advisable to slowly accumulating the good fundamental stocks on dip and do keep in mind of the cautious view that should the consolidating range being broken down, there will be more downside for STI and hence not over-committing should be a strategy to adopt when accumulating.
For short-term investors/traders, the market will remain choppy and volatile, an advise would be either stay sideline or trade from trend to trend ( support to resistance ) of the range between 2,700 - 2,820.
From the fundamental view on Singapore economy, the recent released of 1Q10 GDP and Government projection for a top end of 9% GDP growth for this year showed a better than expected recovery and so far nothing has changed much fundamentally unless the European debt issue has blown out of the control of EU and spread towards US and rest of the world. Most bigger companies should be seeing slower and flat growth for the second half of the year after a strong recovery since March 2009 as they need to wait for the laggard to catch up with their recovery. As such, the recent drop in price of the blue chips could be factoring in the slower or flat earning in the second half of the year.
