To end off the week of the Lunar Calendar for 2015, we saw the STI making a rebound of ~64 index points (+2.5%). This was mainly led by the telcos and the banks, on top of positive news for SIA’s fiscal year third quarter profits and other encouraging results from Singpost and GLP.
Moving forward, we should see earnings affected broadly by weaker exports, increased structural unemployment, slower manufacturing output, slower wage growth, poorer business confidence and of course the continued downtrend in the STI.
Short Term View:
The relief rally should find some resistance at the 2760 spot if buyers are not committed to hold the price. If it fails to break through convincingly, we’ll see further downside. Since now is earnings / dividend season , we’ll probably see some slight strength in selective counters.
Medium Term View:
We see a base forming at the 2525 support level. However, should the global economy slowdown pursue, we should see the index making lower lows & lower highs with potential technical rebounds off the 2440 and 2350 markers.
STI is likely to retest the 2760 support turned resistance which also coincides with the medium-term down-trend line resistance.
For those trading the market, the same strategy prevails:
1) Short on every technical rebound upon weakness when STI fails to break through immediate resistance
2) Avoid catching falling-knives
3) Only attempt to long when sell-down has formed a base (for technical rebound plays)
For investors, the STI valuation (P/E about ~10.5) is starting to look attractive but seems fairly valued at the moment. I personally feel there is more downside to the market after dividend season. Yields haven’t really looked extremely attractive as poorer forward earnings are yet to be reflected in the market price. As such, I believe there should come a time where the index falls a further 15% after the rally. This could be accompanied by rising credit defaults from large corporates or even a string of small corporates / nations. Hope to snag some bargains when the opportunity presents itself.
For now, keep calm and enjoy the Chinese New Year! Let’s usher in the Year of the Monkey for 2016 with good health, aspirations and prosperity!