Technical View
STI, China Farm Equipment, FerroChina

Straits Times Index: A potential H&S Top

While our previous forecast that the correction is over for the Straits Times Index (FSSTI Index) may not have gone the correct way, the support range of 3,130 – 3,150 that we have identified for the past weeks has once again held up nicely. What is worrying, however, is that price action looks to be charting out a Head and Shoulders Top which represents a bearish formation.

Developments in the next 2 weeks would be crucial. Should price action advance but fail to conquer the 1^st resistance mark at 3,270, this could suggest that the ensuing pullback would break below the 1^st support area and fall all the way to the 2^nd support area at the 3,030 level.

However, if the 1^st resistance level is taken out, this would negate the idea that a H&S pattern is in the making and therefore propel the STI to the 3,300 level as we have previously mentioned. For this scenario, we envision that price action would enter into a stage of consolidation around the 3,300 mark before breaking above.

China Farm Equipment: Edging close to resistance

After having rallied 95% in less than 2 months, China Farm Equipment (CFE SP) is looking overbought as displayed by the negative divergence by the 14-day RSI (currently at 76) to its share price. Price action has also reached the upper bollinger band but has failed to break above convincingly, further implying that a pullback is now on the works. While we believe that a correction could soon take place, support at the $0.51 – 0.53 range should cap any additional downside. This area represents the 150-day moving average and a series of daily lows.

Nevertheless, the price trend as seen in the past few months suggest that the security is still within an impulse wave in an uptrend. After the potential correction in its share price has been completed, the security should continue to appreciate. Initial resistance is identified at the $0.600 – 0.605 range as depicted by the upper bolllinger band and a series of daily highs. A break above this level constitutes a bullish move which should eventually push the share price all the way to the 2^nd resistance level.


FerroChina: Barriers ahead

Price action of FerroChina (FRC SP) has met with resistance at the $1.74 mark and has bounced off thereafter. Share price has repeatedly failed to penetrate through the 150-day moving average after breaking above the upper bollinger band which implies that some profit taking may be forthcoming. Furthermore, the strong barrier in the form of the 2nd resistance level at the $1.84 mark by virtue of the 200-day moving average and a series of daily highs also suggests that it may be unwise to engage in fresh long positions at this point of time.

Nonetheless, any downside in FerroChina’s share price should be relatively contained by the immediate support mark that is just around the vicinity. In the event that this 1st support at the $1.43 – 1.45 area does give way, however, the 2^nd support level at the $1.34 – 1.35 range should be able to cap any additional bearish momentum. This level is derived from the 50-day moving area and a series of daily lows.


China Sports: Looking for a breakout move

Share price of China Sports (CSPORT SP) is facing immediate resistance at the $0.595 mark, courtesy of the 100-day moving average and the upper bollinger band. A cut above this level would result in a very bullish break going by historical trends, as price action had produced a 56% move the last instance the 100-day moving average was violated. Also, recent price action indicates that the security has been adhering to the fibonacci rules – the 61.8% retracement of 0.357 to 0.51 equates to the trend low on 14-Apr. By extension, the 161.8% fibonacci move should then push share price to the 2^nd resistance mark at the $0.66 mark. Lastly, the MACD remaining above the centreline suggests that the prevailing trend is still bullish.

However, should share price fail to take out the $0.595 initial resistance mark, support at the $0.50 – 0.51 area should keep any potential downside in check. This level is represented by the technical gap and a series of daily lows.

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Stock Pick
Man Wah Holdings: Neutral (Phillip Securities, 18 Nov), Swiber Holdings: Neutral (DMG, 18 Nov), Armstrong Industrial: Buy (DMG, 18 Nov), Olam: Buy (DMG, 17 Nov), Sembcorp Marine: Buy (DMG, 17 Nov)