Technical View – Global Indices

Straits Times Index: Time to cash out

A half-filled glass. Our call for the Straits Times Index (FSSTI Index) to engage in some profit-taking activity was only partially correct as the index lost 87 points to hit a low of 1,658 during the earlier part of last week – a major rally seen in the second half had eventually propelled the STI to register a 4.3% weekly gain. Nevertheless, we continue to believe that such gains are unsustainable in the short-term as our Wave Count suggests a price target of only 1,840 – 1,883 within the next 10 to 12 months (refer to our Singapore Market Strategy 2Q09 for more).

Key levels to note. Resistance at the 1,840 – 1,883 region consists of certain key fibonacci retracement levels, the upper bollinger band and a technical gap – we do not expect this level to be broken. On a probable price target for the selling momentum that we have forecasted to occur, initial support located at the 1,689 – 1,697 area where the 100-day moving average and a daily low reside could serve to cap any additional downside. Further support is also available around the 1,660 mark where a series of daily lows are situated.


Shanghai Composite Index: Current rally may not move past the 2,473 – 2,523 resistance

On the right track. As noted in our previous report that it would make further gains, the Shanghai Composite Index (SHCOMP Index) performed inline with our forecasts as it increased 1.9% for the week. We therefore would be maintaining our Wave Count for now on the basis that Waves 1 to 4 have been completed, although it is unclear whether or not the present Wave 5 may still be intact.

Strong resistance ahead. While Elliot Wave guidelines suggest that Waves 5 usually travel the 100% extension of Waves 1, note that the minimum requirement is of a much lesser magnitude at 61.8%. As the index has already more than fulfilled this 2,306 level [ derived from 61.8% * (2,100 – 1,664) + 2,037 ] in this current rally, it is therefore probable that Wave 5 may have been completed and a pullback is at hand. Moreover, even if this Wave 5 within the index was to appreciate up to the benchmark 100% move of Wave 1, resistance is also not too far ahead at the 2,473 – 2,523 range where the upper bollinger band and a series of daily highs also reside.

Technical indicators are not bullish. Taking into account the limited upside that remains, we are of the opinion that the risk-to-reward ratio does not favour engagement in long positions at present levels. Furthermore, the 14-day RSI is also approaching an overbought level. On the bright side, even if price action were to turn bearish, however, we do not expect support at the 2,240 – 2,250 area (as defined by the 200-day moving average) to be broken.


Dow Jones Industrial Average: Profit-taking to drag index down to 7,462 – 7,562

Performing as anticipated. Our forecast for the Dow Jones Industrial Average (INDU Index) to register additional gains was once again in the money as the index appreciated some 3.1% last week. However, with Wave 1 having possibly fulfilled the benchmark 61.8% fibonacci retracement of its previous downtrend from 9,088 to 6,469 when the index had hit its monthly high during Apr 09, it is therefore likely that the corrective Wave 2 is forthcoming.

Our preferred Wave Count – Wave 1 may have ended. Assuming Wave 1 had travelled from 6,469 to 8,075, a conservative price target for Wave 2 would be the 38.2% fibonacci retracement point. With this resulting in the 7,462 mark [ derived from 8,075 – 38.2% * (8,075 – 6,469) ] and coupled with the 50-day moving average at the 7,562 level, we therefore identify support at the 7,462 – 7,562 region.

Alternate Wave Count – Wave 1 still at play. Should the index depict a clear break above the 8,087 level, this would indicate that Wave 1 has not yet ended and that the ensuing momentum should push it to the resistance area at 8,446 – 8,470 – this level is derived from the 76.4% fibonacci retracement of 9,088 to 6,469. Nevertheless, we do not think this would occur in the short-term as the 14-day ADX is still languishing at tepid levels.


S&P 500 Index: Rally may have stalled

Continues to be positively correlated to the DOW. Similar to the DJIA, we also believe that the S&P 500 (SPX Index) may experience some downside for the present week. The current Wave 1 may have already been completed and the ensuing Wave 2 should therefore correct some of the gains that were seen last month.

Losing steam. Additionally, the 14-day ADX continues to decline and is also looking to break below the 20 mark, implying that the current (bullish) trend is weakening. Our resistance level at 866 – 877 represents a series of daily highs and the upper bollinger band while remaining pegged to the 76.4% fibonacci retracement of 943 to 666. Support, on the other hand, is identified at the 779 – 783 range as derived from a series of daily lows.


Hang Seng Index: Major resistance around the 15,000 level to cap any further upside

HSI could have bottomed out. Our call that the Hang Seng Index (HSI Index) would not produce any short-term gains was somewhat off the mark as the index finished the week with a 3% gain. While we had mentioned previously that the Wave Count was ambiguous, we now believe that the outlook has cleared up. We are of the opinion that the HSI could have possibly bottomed out during early Mar 09 when it hit the 11,344 mark with the completion of Wave 5 of C.

However, short-term price action is not bullish. Similar to the US indices, current Wave Count for the HSI also suggests that its Wave 1 may have already been completed or is close to completion – this in turn implies that the corrective Wave 2 is imminent and therefore we are advising against engaging in long positions. Furthermore, we have also identified a slew of major resistances in the 14,720 – 14,976 range which includes the 76.4% fibonacci retracement of Wave 5 of C, the 23.6% fibonacci retracement of the entire Wave C, the upper bollinger band and a technical gap.

Key support levels. Should price action turn bearish from current levels in accordance to our forecasts, initial support at the 13,788 – 13,953 area as represented by the technical gap would be available to prevent any additional downside pressure. Should this barrier be broken through, further support is seen at the 13,411 – 13,428 range as implied by a series of daily lows.















DMG & Partners Research Guide to Investment Ratings

Buy: Share price may exceed 10% over the next 12 months
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Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain
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Neutral: Share price may fall within the range of +/- 10% over the next 12 months
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Take Profit: Target price has been attained. Look to accumulate at lower levels
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Sell: Share price may fall by more than 10% over the next 12 months
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Not Rated: Stock is not within regular research coverage



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The information contained herein has been obtained from sources we believed to be reliable but we do not make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Opinions and views expressed in this report are subject to change without notice.

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