Markets – Likely To Take A Breather

13 AUGUST 2012
Markets – Likely To Take A Breather
By Ernest Lim

For the past two weeks, Asian markets have surged with Hang Seng and Nikkei posting a 4.5 percent and 3.8 percent gain respectively. Optimism on potential central bank action from US and Europe and the possibility of more easing from China (especially with the much weaker than expected trade data, industrial production, retail sales released last week) kept the rally alive.

Table 1: STI’s past 2 week price performance vis-à-vis other indices

Source: Bloomberg, Ernest’s compilations

Looking forward to this week, Tuesday would be a day of focus. On Tuesday, important economic data such as China’s foreign direct investment, French and German Prelim GDP, German ZEW Economic Sentiment, Europe Flash GDP, Europe industrial production and US core retail sales data would be on tap. Investors would also watch out for the US CPI, manufacturing, housing and consumer sentiment data scheduled for release between Wednesday to Friday (please refer to “Summary of Economic Calendar for the Week ahead (SIN time)” below for some of the important economic events to take note).

For the week, STI retreated from an intraday high of 3,086 and found support at the previously mentioned resistance turned support level 2 of around 3,044. It closed 3 points higher, or 0.1 percent to 3,054. As the results season comes to an end in the next couple of weeks, markets are likely to take a breather. In addition, it is noteworthy that European stocks have rallied for 10 consecutive weeks, or 15 percent since 4 June. US stocks have rallied for five consecutive weeks. Furthermore, the earliest where we can get a sniff of whether we may get QE III is at the Jackson Hole Symposium which stretches from 31 Aug to 2 Sep. Thus, between now to 31 Aug, odds are higher that markets may take a breather. As markets take a breather, there may be selected rotation to the second liners. Notwithstanding the lack of catalysts from now to 31 Aug, it is unlikely that markets may face a significant sell off of more than 10 percent before the Jackson Hole Symposium on 31 Aug.

As mentioned 3 weeks ago in my weekly newsflash 23 Jul to 27 Jul, readers can consider to adopt a nimble trading strategy (at least for a portion of your portfolio) to buy on weakness and sell on strength. OSIM International (which I have emailed to my clients on 26 Jul early afternoon before its results) is a case in point where it weakens from $1.23 on 20 Jul to $1.185 on 26 Jul. Thereafter it gaps up on 27 Jul after its result release on 26 Jul evening. OSIM went to an intraday high of $1.34 on 7 and 8 Aug before it closed at $1.33 on 10 Aug.

Ezion Holdings is another company which I mentioned in my previous week weekly newsflash 6 Aug to 10 Aug where such trading strategy may be employed. It was around $0.975 on 3 Aug and went to an intraday low of $0.960 on 7 Aug, the eve of its results announcement. It closed at $1.040 on 10 Aug, more than a five year high. Nevertheless, Ezion is a highly volatile stock which may not be suitable to some readers. Readers who are interested to know more about Ezion can email me at crclk@yahoo.com.sg for the analyst reports.

All the best for your investment and trading!

Please note that the above is my personal opinion and may not cater to your specific risk profile etc. The question of when to buy / sell and what to buy / sell differs greatly from individual to individual. Furthermore, it is extremely important to bear in mind that the market outlook is never static. It can change suddenly if there are sudden big events unfolding from the market – some events can happen as quickly as a few hours.

STI supports and resistances are:

Current: 3,054

Support 1: 3,044

Support 2: 3,027 – 3,033

Support 3: 3,016

Support 4: 2,996-2,997

Support 5: 2,962 – 2,966

Resistance 1: 3,063

Resistance 2: 3,078 – 3,086

Resistance 3: 3,105

Resistance 4: 3,120

Resistance 5: 3,137

*Supports and resistances are not static levels. They may be subject to change daily.

*Summary of Economic Calendar for the Week ahead (SIN time)

13 Aug, Mon: (JPY) Prelim GDP;

14 Aug, Tues: (JPY) Monetary Policy Meeting Minutes; (CNY) **Foreign Direct Investment; (EUR) French & German Prelim GDP / French Prelim Non-Farm Payrolls / German ZEW Economic Sentiment / Europe Flash GDP / Europe Industrial Production; (GBP) CPI; (USD) Core Retail Sales / PPI / Business Inventories;

15 Aug, Wed: (GBP) MPC Meeting Minutes / Unemployment Rate; (USD) Core CPI / Crude Oil Inventories / Empire State Manufacturing Index / Industrial Production / NAHB Housing Market Index;

16 Aug, Thurs: (EUR) Core CPI; (GBP) Retail Sales; (USD) Unemployment Claims / Building Permits / Housing Starts / Philly Fed Manufacturing Index;

17 Aug, Fri: (EUR) Trade Balance; (USD) Prelim UoM Consumer Sentiment / CB Leading Index;

*All economic data especially China data (if any) are subject to changes without notice. The above list is not exhaustive. I have merely listed the economic data which I feel has more impact to the market.

**China Foreign Direct Investment is tentatively scheduled on 14 Aug.

***The above is part of the weekly newsflash which I send out to my clients weekly on a weekend.

Information sources: Various sources such as Bloomberg, Dow Jones, forex calendar, Reuters, SGX, Yahoo Finance, and Business Times etc.

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Publish date: 13/08/12