Short-term bounce possible

Selected index stocks appear weak, and this is pressuring the Straits Times Index. Keppel Corp closed below its 200-day moving average at $10.52 on Sept 25. Jardine Cycle & Carriage appears poised to break below a double top. Elsewhere, Singapore Telecommunications ($3.78) has fallen below its 100-day moving average at $3.82, and a support at $3.80. The STI too closed below its 100-day moving average at 3,298. S-chip Yangzijiang Shipbuilding’s chart pattern looks more resilient than the blue-chips and quality counters. However, OCBC Investment Research downgraded the stock on Sept 24 to a “hold”, citing its shadow banking segment as a concern.

Commodity-related stocks, including the plantation counters, are drifting lower. The Bloomberg Commodity Index fell to a four year low on Sept 25. In the meantime, the US Dollar Spot Index climbed to a four-year high. The strengthening US dollar has started to fuel concerns of an outflow of “hot money” from Asia, which could punish markets. Hence, as developed markets stayed sanguine, Asian markets continued to trade on nervous note. On Sept 25, the Hang Seng Index closed marginally below its 100-day moving average.

The Hang Seng Index (23,768) remained skittish and may continue to flirt with a support. It is now a shade below its 100-day moving average at 23,774. In the short term, the index could regain this level, as both 5-day stochastics and 21-day RSI have turned up from oversold lows. These should be able to trigger a bounce at the very least. Resistance appears at 24,548. The next support appears at an old breakout level at 23,546 and the 200-day moving average is at 23,157.

VIX meets resistance and retreats

The Volatility Index (13.27) gained about half a point during the past five trading sessions. During this period, it retested a high of 14.53 to 14.93, after which it retreated. Both long- and medium-term indicators are showing signs of turning down. This suggests that the index is likely to move towards 11.8-to-12.

US markets challenge resistances

The Dow Jones Industrial Average (17,210) may have cleared a resistance area as it reached a new high. Although ADX has not budged from the 14 level for a week, an upturn by short term stochastics and 21-day RSI has triggered the rebound move. While a decisive breakout occurs at 17,300, the break above 17,100 could take the index above 17,500.

The Standard & Poor’s 500 (1,998) was unable to hold at 2,000 and has eased marginally. Its directional movement indicators continue to drift downwards and are now at 14, down from 16 a week ago. This suggests that the index is unlikely to make much headway on the upside in the next few sessions. Support has been established at 1,976, the low end of the sideways range. A breakout, if it materialises, would indicate an upside of 2,050 but that looks remote in the near term.

STI (3,290)

Long term: flat; medium term: down; short term: upturn

Short term

RSI (Chart B) is hovering just above its low.

ADX (Chart B) has turned up and the DIs are turning negative.

Stochastics (Chart B) has turned up from the bottom of its range.

Medium term

Quarterly momentum (Chart A) is attempting to rebound off neutral levels.

Long term

Annual momentum (Chart C) has turned down at its equilibrium line.

24-month ROC (Chart C) remains flat.

(See Charts A, B and C)

The STI continued to drift broadly lower, punctuated by lacklustre rebounds now and again. During this decline, it closed below its 100-day moving average at 3,298. Short-term indicators may prevent a further downmove in the immediate term, and their upturn should trigger a rebound in the next couple of sessions. Stochastics has turned up from the bottom of its range, and 21-day RSI is attempting to turn up from an oversold level. In addition, quarterly momentum is attempting to bounce off neutral levels.

From a chart pattern point of view, immediate resistance for the rebound is at the minor breakdown level of 3,312 initially, and subsequently at the 50-day moving average, which is turning down at 3,325.

Long-term indicators deteriorated in the first half of September. Annual momentum turned down last week, and is inching lower. Twenty-four-month ROC is flat. Overall, the decline has yet to run its course and the STI may continue to fall after the upcoming temporary rebound.