The last bullet for US, that is what happen when President Obama presented the US$447b plan to create jobs and spark economy growth yesterday. Coupling with a suitable US Fed stimulus program ( not another QE1 or QE2 similar type of stimulus ) will enable the US to prevent a new recession. However, the barrier to the US$447b plan is none other than politics in US. With the Republicans dominated the Lower House and they are renowned for against tax hike together with President election coming next year, putting political issue over country's interest for the Republicans to score point might be at work again like the recent debt ceiling debate to prevent a smooth passing of the bill.
In the Europe region, neither anything has changed nor improved regarding the debt issue. Bailout funds for Greece hitting resistance, Italy and other debt ridden EU countries are rushing to come out austerity plans to cut their deficit to save the country being default and probably put an end to the Euro.
Asian countries still feeling the heat of the high inflation while economy growth has been slowed down due to the impact done by US and EU. Japan itself is trying to recover from recession after the March natural disaster.
The above are the problems that facing the global economy and if appropriate actions are not being injected will lead to another global financial crisis. With that, global stock markets also took a beating since August till now. Most stock indices are at or near critical support ( in particular Asian bourses ) and awaiting for all those issues or uncertainties to be removed. Once this critical support is broken ( meaning the global economy turning sour and leading to recession ), a new downtrend will emerge and sinking to a level to indicate of the economy going into recession phase. Should a recession occurs and typically lasting 18 months to recover, this will lead us to the year 2013 when markets bottom up and heading for another recovery rebound.
STI at the moment critical support is at 2,650. Should that breaks, the downside is at least 2,400 or lower depend on the seriousness of the "recession". Estimation of a full blown recession to hit Singapore, STI 1,600 level is possible.
The outlook for STI will be very heavily depend on whether President Obama's plan could get be approved in the coming months and a suitable stimulus program being introduced by US Fed ( earliest in the 20-21st Sep 2011 FOMC meeting ). As such, the next few weeks, will be volatile for STI.
For long term investors, would advise stay cash and wait for clearer picture/outlook to emerge. Should the last bullet can't save US economy, staying cash and waiting for recession to pick up cheap stocks would be a very appropriate strategy. Long term investors with existing holding ( either still in profit or loss position ) probably need to stay put ( assuming those holding could generate good dividend per annual to hedge against inflation ).
For short term investors, as usual play by the support - resistance level strategy. Volatile market will create good trading opportunity with such a strategy but remember to maintain risk management ( ie cut loss ).
Some of the various support and resistance levels for STI are as followed :-
Support levels : 2,810, 2,720, 2,680, 2,650
Resistant levels : 2,850, 2,880, 2,900, 2,920
Note also once 2,650 breaks, new downtrend emerges and if 2,920 breaks, STI will negate the downside bias and enter consolidation phase for a further upside.
