The US Market

The S&P 500 index managed to defend its foothold to stay above the 1,350 level, as it steadily approaches the 1,400 level — a significant psychological level that could signal a strong move to either direction. Read this article about market behaviour when major indices, such as the Dow Jones Industrials, approaches price levels ending in large round numbers.

Caution is advised for the bulls waiting to jump in, as the MACD indicates a “bearish divergence” — where the indicator is trending flat/downwards, while the index is trending upwards. This could mean that only a handful of heavily-weighted stocks are powering the rally, while the broader market is staying flat or even trending down. A piece of homework that you can do is to analyse the “heat map” of the S&P 500 constituent stocks, which allows you to visualize quickly how individual stocks and sectors are performing relative to each other. The size of the each box in the map  represents the weightage of the stock relative to the broader index. Can you see which companies/sectors are leading the markets here?

The Straits Times Index

The STI is continues its assault on the 3,00 level, again a significant physiological battle between the bears and the bulls.

Similar to the S&P 500, we should be cautioned by the bearish divergence shown on the MACD, which is further confirmed with the downtrending RSI showing a loss of bullish momentum. Savvy bulls would do well to wait on the sidelines until the STI breaks comfortably above the 3.000 level before jumping in.

STI Earnings Reports

The following companies are scheduled to report earnings this wee, with STI constituents highlighted below:

Monday: Armstrong, Best World, China Sunshine, CSE Global, First Resource, Golden Agri, Kingsmen, Li Heng, Q&M Dental, QAF, Sembcorp, Swiber, Xinren

Tuesday: DMX, Ho Bee, Hong Leong, KS Energy, Mewah, Nippecraft, Noble, Singapore Reinsurance, Synear, Treasury China Trust, United Engineer, World Preci, Yangzijiang.

Wednesday: City Dev, EMS Energy, Golden Ocean, Hong Leong Asia, Indofood Agri, Perennial

Thursday: Dairy Farm, HongKong Land, Mandarin Oriental

Friday: Jardine Mattheson, Jardine Strategic

Outlook

A review of the major US indices (DOW, SPX, NASDAQ and RUT) charts are all showing signs of bearish divergence against their respective MACD. Technically, this is very bearish for the market, at least for the short term. According to historical market patterns, the markets were due for a correction last week, but it didn’t really happen. Buyers were supporting the market at every minor dip. We should be careful to let the market correct “sufficiently”. Now, the question lies in what would be a “sufficient” pull back – 1%, 3%, 5% or 10%?

Only time will tell….

Introduction

Hello everyone, my (nick)name is Ichimoku and I have been kindly invited to contribute articles to this site. Like Marubozu, I have an interest in trading and investing using a combination of fundamental and technical analysis. I will start off with a series of weekly market analysis focused on the Singapore stock market, based on on current global macroeconomics and chart analysis. The views expressed here are based on my personal opinions and is only meant for educational purposes only.

The US Market

Let’s start off from the US, looking at the broad-based S&P 500 index ($SPX). Here’s the weekly chart from 2007 till now, where you can see an uptrend channel rising from the ashes of the 2009 crash. Since then, the index has been steadily rising for the past three years, briefly reclaiming the 1,300 mark before the global market capitulation in the summer of 2011. Since then, the index seems to have picked itself up and steadily working its way up.

At the end of Dec 2011, the market started to rise, a phenomena traditionally called the “Santa Claus Rally”. Historically, such rallies usually ends around end of February the following year, but we have yet to see that happening. As a result, the market is currently now heavily overbought and everyone is getting nervous about an imminent pullback, like what had happened at the end of February 2011.

The Straits Times Index

Let’s turn our attention to the STI, with the STI weekly chart – note that I am using the STI ETF here which is proxy to the underlying STI index.

The Singapore index hit it’s 5-year high of 3,400 points in November 2010 and is now working it’s way back having bounced off the %61.8 Fibo support with a “Double Bottom” pattern formation between Nov-Dec 2012. The MACD and RSI shows healthy upward momentum towards.

The daily chart indicators tell a different story for the weeks ahead, with RSI shows the index trading near overbought levels. Note the slope of the lines drawn between the peaks of the daily closing price against that of RSI indicator at the bottom — the gradient of the price line is increasing, while that of the RSI remains flat. In technical analysis, this is called a bearish divergence, which is a signal indicating an imminent correction in the next few days.

The savvy investor or trader would do well to wait for a retracement of the index to re-test the 2,950 support level before opening any long positions.

STI Earnings Reports

The following STI constituent companies are scheduled to report earnings this week:

Monday: OCBC

Wednesday: Genting SP, NOL, Wilmar

Thursday: Cosco, Sembcorp Marine, ST Engineering, UOB 

Outlook

The $VIX, more commonly known as the “fear-indicator”, which measures the market’s expectation of volatility in the next 30 days, has fallen back towards its 15-20 zone where market sentiment can be read as being “complacent”. This means that price of options  are cheap, a good time to hedge your open long stock positions with put options.

I think the markets will continue its march upwards, bolstered by the confidence in the US-economy and the ability of the EU to contain their mess. With the US presidential elections and London Olympics in the cards later this year, investors are further comforted by the historically bullish performance during such years. We may see some turbulence the next couple of weeks as the oversold market pauses to catch its breath, but any dip should be seen as a buying opportunity and those holding long positions should enjoy the ride all the way through April-May 2012.