STI hit an intra-day low of 3,117.72 in the morning session on 10th Feb 2011 and closed 3,123.37 for lunch break, thereby testing the 3,120 support. STI has fallen out of the symmetrical triangle formation and at the moment supported by 3,120. The next level of support should 3,120 give way would be at 3,000 - 3,050 region. From a recent high of 3,313, a pull back to 3,050 would give a pull back of 7.94% as compared to last year STI correct 10% due to the Greece crisis.
Short-term wise, the trend is biased towards the bearish side. With the long-term GMMA lines still yet to expand in a downtrend, it is too early to conclude STI has entered a downtrend. The reason for this pull back could be draw to funds are cashing out as fundamentally Singapore economy still intact. With majority of the blue chips bearing the selling pressure, penny stocks are hardly move a bit.
There are some events to look forwards to which might give the market a clearer direction in the next few weeks.
1. Singapore budget day on 18th Feb 2011. Most expecting some goodies from the Government to help people to fight the rising cost of living and any pro business measures would be very welcome too.
2. Hong Kong budget day should be around next week or the week after next too. Hong kong is facing inflation issue too and all eyes will be looking at whether the budget measures will be pro business and pro consumer friendly. A rebound from the Hong Kong market could help lifted some bearish sentiment from STI.
3. China inflation data will be out next week. China raise interest rate 2 days ago before the inflation data is out. This has drawn speculation that the inflation data might be blown out of control leading to the Chinese Government to act quickly. There are 2 implications on the data :-
a) If the inflation data is really blown out of control, the recent interest rate hike might not be enough and there could be 1 or 2 more within 1H2011. These measures are in general not stock market friendly.
b) If the inflation data is taming down, the recent interest rate hike could be the last one to cool it and hence for the remaining of the year, China might keep its monetary policies loose and focus on economic growth and that should be stock market friendly.
4. US markets have been moving up for past weeks with reason citing that economy is recovering and corporate earnings were firmer. However, the fundamental of US high unemployment rate issue still remain unresolved. This is rather worrying as the US stock markets are over-stretched in term of fundamental and creating equity bubbles in between. A correction in the scale of 5% might be occurring soon. For past weeks, when US markets moving up, STI did not really followed and if US markets were to correct, STI might face the knee jerk reaction and continue to trend down.
For short-term investors, current market direction is uncertain and advise to stay cautious and await for clearer direction to establish.
For long-term investors, the selling down could be an opportunity to accumulate. Targeting those companies which for past months reported good and sustainable profits would be wised as those stocks would rebound once the stock market rebound.
