Technical View – Global Indices

Straits Times Index: Accumulate on any signs of weakness

Our contrarian call that most market indices would encounter a pullback during the previous week did not materialise. On the local front, the Straits Times Index (FSSTI Index) extended its charge on high volume to eventually chalk up a 3.7% weekly gain. Given these developments, we now believe that the index is still riding on a Wave 1 which is expected to translate into further upside.

Retracements to be regarded as healthy pullbacks. While the 14-day RSI is approaching overbought territory, we believe that any profit-taking seen in the index should be seen as healthy pullbacks. As with the previous three instances (once in Mar 09, twice in Apr 09) when the RSI was close to or at the overbought mark, the STI did give back some ground although the ensuing rally had more than made up for it – the STI had appreciated more than 300 points since the end of Feb 09.

Initial but weak resistance at the 1,959 level would first serve to cap any additional upside, although we do expect this barrier to be broken. Following which, the momentum is expected to drive the STI up to around the 2,000 mark where stronger resistance at the 1,991 – 2,037 range is located. On the other hand, any retracements seen within the STI should be limited to the 1,836 – 1,848 range which a technical gap resides.


Shanghai Composite Index: Targeting above the 2,600 mark

Continues to rally. Our earlier forecast that Wave 5 may have ended when the Shanghai Composite Index (SHCOMP Index) hit the 2,456 mark during early Apr 09 was on the wrong track as a runaway gap manifested last week to propel the index to another week of gains. Presently, we believe that Wave 5 may still be play and therefore we are expecting further upside to occur for the index.

Longer-term trend is also bullish. With the 14-day RSI remaining below the 70 level, the index does not appear to be overbought. Additionally, we also note that the index had produced a clear break above all its longer-term moving averages (50, 100 and 200) – this suggests a rather bullish trend as the last instance when a break above its 200-day moving average had taken place in Dec 05, the ensuing rally saw the index appreciate by more than 3,500 points before breaking back below the 200-day MA.

The 2,625 level may be viable. After having more than fulfilled the 100% extension move of Wave 1, we believe that the next price target for the current Wave 5 would be the 100% extension of Wave 3 at 2,625 [ derived from 1.0 * (2,402 – 1,814) + 2,037 ]. Coupled with the daily high seen on 11 Aug 08, we therefore indentify resistance at the 2,601 – 2,625 region. Meanwhile, support at the 2,444 – 2,464 range is expected to deter any potential pullbacks.


Dow Jones Industrial Average: May consolidate before pushing higher

Switching our views. We had previously mentioned that we would be adopting a short-term bearish stance on the Dow Jones Industrial Average (INDU Index) until the 100-day moving average is broken above. Now that price action has produced such a phenomenon during 16 Apr 09, we believe that the index may be poised to extend its gains despite the spectacular rally it had experienced off its Mar 09 lows.

However, a short-term breather may be at hand. The MACD chart is showing some signs of flattening out. While this may indicate that the index may be entering a consolidation period which might see some of its gains being tapered off, note that its moving averages are still firmly above the centreline – this indicates that the underlying trend remains bullish. Furthermore, the lower bollinger band is also turning up sharply, reflecting support levels are being elevated up higher progressively.

Wave Count suggests a target around 9,000. The current Wave 1 should still be at play – we peg resistance at the 8,996 – 9,015 area, courtesy of the 38.2% fibonacci retracement of Wave C at 9,015 [ derived from 0.382 * (13,136 – 6,469) + 6,469 ] which roughly coincides with a certain daily high seen during early Jan 09. Should the index enter a consolidation period, however, any probable short-term downside would find initial support at the 7,750 – 7,798 range while further support is also available at the 7,540 level.


S&P 500 Index: Trading inline with the DJIA Wave

Similar to the DJIA, the S&P 500 (SPX Index) has also produced a clear break above the 100-day moving average – we therefore also believe that its gains could be extended. As with the chart of the DJIA, the bollinger bands within the S&P Index are also turning up while the MACD technical indicator is also emitting signs of flattening out, although it nevertheless remains above the centreline. In summary, we believe that the S&P Index could therefore similarly consolidate before making a substantial push further.

Currently also in a Wave 1 that has yet to run its full course, a probable price target for the S&P Index would be the 961 mark [ derived from 0.382 * (1,440 – 666) + 666 ]. As a series of daily highs also reside at the 951 level, we therefore identify resistance at the 951 – 961 area. Support levels, meanwhile, are seen at the 828 – 831 and 814 levels respectively.


Hang Seng Index: Current Wave to hit the 17,090 level

Primary Wave Count was incorrect. Ironically, our alternate Wave Count for the Hang Seng Index (HSI Index) turned out to be the correct one. We had previously wrote that a break above the 15,147 – 15,258 area would see price action fully retrace Wace 5 of C at the 15,763 mark – this scenario would also indicate that Wave 1 was still up and running. During last week, the HSI had actually cleared both these levels to eke out a 700-point weekly gain.

Momentum remains positive. Wave 1 appears to be still up and running, implying that additional upside may be forthcoming. Furthermore, the 14-day ADX has also trended up, indicating that the current (bullish) trend is strengthening. We therefore would be altering our previous bearish view and are now forecasting the HSI to ascend further.

Key levels to note. We see resistance at the 17,090 – 17,141 region as depicted by the confluence of the 38.2% fibonacci retracement of Wave C [ derived from 0.382 * (26,387 – 11,344) + 11,344 ] and the trend high recorded during 14 Oct 08. Support levels have been outlined by the two respective technical gaps, residing at the 14,987 – 15,140 and 13,788 – 13,953 areas.















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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