Technical View – Global Indices

Straits Times Index: Further downside is impending

Inline with expectations. The Straits Times Index (FSSTI Index) hit a low of 2,211 although it eventually clawed back some of its losses to lose 59 points in a fortnight, inching slightly below our former support level of 2,220 in the process but performing inline with our bearish expectations – we had previously mentioned that a “correction is forthcoming” for the index. Given that the present Wave A has yet to run its full course and with the MACD chart remaining bearish, we are of the opinion that the STI is set to lose further ground in the near-term.

The STI appears to be in the terminal stages of a sub-wave 4 of A, given that the rebound off the 2,211 level has fulfilled the 61.8% fibonacci retracement of sub-wave 3 of A. With the impending sub-wave 5 of A expected to drag the STI lower, we therefore recommend short-term traders with existing long positions to cash out of the market while those looking to accumulate should wait for lower levels.

Resistance at the 2,396 level – as depicted by a series of daily highs – is expected to hold firm. On the other hand, initial support is identified at the 2,211 – 2,218 region as outlined by the lower bollinger band. Additional support is also seen at the 2,094 level should the first support falter.


Shanghai Composite Index: The party continues

The rally in the Shanghai Composite Index (SHCOMP Index) was not within our expectations as we were forecasting Wave A to drag the index down to lower levels. Given the ease of how the 100% fibonacci extension of Wave 1 at 2,808 was broken above, however, we have revised our Wave Count and we now subscribe to the view that the present Wave 5 is poised to push the index to higher ground.

Targeting the 3,077 mark. The 14-day ADX has trended up in sync with the rally in the index, signifying that the current (bullish) trend is gaining strength. Resistance is identified at the 161.8% fibonacci extension of Wave 1 at the 3,064 – 3,077 area, a level that the index is targeting. Support, meanwhile, is located at the 2,841 – 2,844 range where the 14- day moving average and a series of daily lows are situated.


Dow Jones Industrial Average: Consolidation expected by virtue of triangle formation

Performing as anticipated. We have previously wrote that we were expecting Wave 4 to drag the Dow Jones Industrial Average (INDU Index) to lower ground with support seen at the 8,165 – 8,246. Our forecasts turned out to be rather inline, given that the index lost more than 4% in a fortnight and attained a trading low of 8,259 which was just slightly above our support level.

Range trading expected. However, given the muted participation as evidenced by the decline in trading volume during the 361-point retreat in the Dow for the last two weeks, we believe that a 5-Wave Triangle pattern within the present Wave 4 is in the making. This indicates that the Dow may consolidate, further evidenced by the bollinger bands that have stopped expanding.

Key levels to note. The Dow is forecasted to bounce within the quoted resistance and support levels with its trading range expected to contract further in the short-term. Resistance is identified at the 8,877 – 8,928 area, courtesy of the 100% fibonacci extension of Wave 1 and the upper bollinger band. On the other hand, support is positioned at the 8,221 – 8,259 region by virtue of the lower bollinger band and a series of daily lows.


S&P 500 Index: Range trading expected

Expected to turn in a performance similar to the Dow. We have previously mentioned that the move above the 100% fibonacci extension of Wave 1 at the 945 mark by the S&P 500 (SPX Index) had represented a false breakout as the latter eventually lost 28 points in a span of two weeks. We had also written that the S&P is expected to resume its usual trend of trading inline with the Dow – this view remains.

Consolidation in the pipeline. The 5-Wave Triangle pattern seen in the Dow is also expected to occur for the S&P as well while the bollinger bands similarly cease expansion. With the S&P forecasted to consolidate, resistance is identified at the 956 – 960 area as represented by the tip of Wave 3 and the upper bollinger band. Meanwhile, support is located at the 888 – 892 range as outlined by the lower bollinger band.


Hang Seng Index: Trend to turn bearish soon

Current rally may not last. With Wave A of the Hang Seng Index (HSI Index) appearing to have been completed when it reached a low of 17,375 during last week, we have therefore labeled the ensuing rebound as a Wave B. However, with the falling 14-day ADX which signals that the present (bullish) trend is losing strength, we thus advocate a sell-onrally strategy as we believe that the HSI could turn bearish any time soon.

Furthermore, initial resistance which is just around the corner at the 18,739 mark as represented by the 76.4% fibonacci retracement of Wave A is yet another testament that the risk-to-reward ratio is not favourable to those who are looking to engage in long positions at current levels. Should the index start to lose ground as we have forecasted, initial support at the 17,912 – 18,069 area would first serve to cap any additional downside. Further support, meanwhile, is also available at the 17,375 level.















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



This research is for general distribution. It does not have any regard to the specific investment objectives, financial situation and particular needs of any specific recipient of this research report. You should independently evaluate particular investments and consult an independent financial adviser before making any investments or entering into any transaction in relation to any securities or investment instruments mentioned in this report.

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.

This report does not constitute or form part of any offer or solicitation of any offer to buy or sell any securities, DMGAPS and its affiliates, their directors, connected person and employees may from time to time have interest and/or underwriting commitment in the securities mentioned in this report.

DMG & Partners Securities Pte Ltd is a participant in the SGX-MAS Research Incentive Scheme and receives a compensation of S$5,000 per stock per annum covered under the Scheme.

DMG & Partners Securities Pte Ltd is a joint venture between OSK Securities Berhad (a subsidiary of OSK Investment Bank Berhad) and Deutsche Asia Pacific Holdings Pte Ltd (a subsidiary of Deutsche Bank Group). DMG & Partners Securities Pte Ltd is a Member of the Singapore Exchange Securities Trading Limited.

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