FTSE STI closed 3,142.62 on 29th Oct 2010, after hitting an intra-day high of 3,220.71 on 15th Oct 2010, pulling back 2.42% with reference to the intra-day high.
Technically speaking, STI is now in a range bound or consolidation mode with resistance capped at 3,200 and support at 2,970; a 7.2% range gap. STI is also at the support points of the uptrend channel. However, the 14-day RSI has slipped outside of the uptrend channel. The 2 conflicting signals ( 14-day RSI and the index movement) have put STI in a crossroad at the moment. It is either STI can rebound from current immediate support ( 3,120 ) to resume the uptrend or breakdown and head down to 2,970 lower range support. At 2,970 though it has broken down the uptrend channel, it is only a breakdown of the short-term uptrend. The mid to long term trend still valid as it is doing a higher low from the August low of 2,910.
There are several levels which investors/traders should take note.
1. 3,200 -- current resistance level, a breaking out of that level could be seeing the 3,460 level
2. 3,120 -- a soft support and also immediate support at the moment, 3,120 was the projected target when STI rebound from August low
3. 3,040 -- a moderate strength support level, this level formed a double top during the moving up in April and August and by breaking out of a double top resistance, it should provide a moderate strength support level for any pull back
4. 2,970 -- the lower boundary of the consolidating range, which was also a support between Jan - Jul 2008 before the market crashed down. This level should provide the strongest support for this pull back if the overall mid to long term uptrend is still valid.
5. 2,700 -- a breakdown at 2,970 could signify some fundamental issue on the economy as a whole and send the index to the support level at 2,700 level, anything below 2,700 at the moment, economy could be a threat to go into recession.
Presently, the market is looking at several events that dictate the direction of the market, namely the economy status of US, the currency war issue surrounding China, US and Europe, Euro debt issue, inflation threat and Corporate earnings. The above are international events which definitely will have impact on Singapore economy as a whole and the degree of that will be dependent.
Investors should also be focusing on the domestic events as these could either strengthen the economy or help to reduce the impact from external factors.
1. Corporate earnings, Singapore Government has withdraw the stimulus ( which was pumped in last year to support the economy ), like Job Credit and the withdrawal of that has started to show some impact on corporate earnings from the latest earning reports. Companies without the Job Credit assist can see their expenses increased and ate into their profit margin. Despite that, companies are still making profit and potentially companies are facing saturation in earning level at the moment and that could drag into another 1 or 2 quarters. This is a norm in a recovery economy whereby companies will start to pick up in earning again after this phase of saturation. Given no unexpected worsening of global economy scenario, companies should be able to pick up their earnings again in year 2011.
2. Infrastructure projects. Downtown and Circle lines are the 2 examples of infrastructure spending by the Government that help to fuel domestic growth. Apart from that, though Government has lately put in measures to cool down property market, they also releasing couple of land parcels for developers and that will help the domestic growth.
3. Services and consumer sector. The 2 IRs coupling with international events like F1, etc has in a way provide some cushion support for Singapore in its services and consumer sector from sliding and also help the economy as a whole to recover and that trend should still be continuing.
4. Political events. Singapore might have a General Election this year and could come in early Dec 2010. A GE in a way is good for Singapore economy as it provides investors ( internationally ) a confidence to continue to invest in Singapore. The ruling party should have no problem in gaining majority of the seats during the election and by doing so, any future road map or blue prints for Singapore economy for the next 5 years should not have any resistance in being carried out.
From long term investors point of view, given global economy is on the recovery despite along the way some bumps here and there, continue to hold on to their portfolio and slowly accumulating on weakness should be a correct strategy. The several key levels should be able to help investors to judge entry levels.
For short-term investors, look out for the several support levels ( soft, moderate or strong ) for entry and exit when near resistance level. Remember also to maintain a risk management policy whereby if support level is broken down, cut-loss would be appropriate and wait at the next entry level.
