STI: Pushing towards 2700
The commodity market has broken out of its consolidation range and has pushed
higher. This might continue as a catalyst to give the equity market more lift. The S&P
500 has shown strong momentum despite bearish price action and the STI has
traded above resistance at 2660 and turned it into support. Continued strength in the
commodity market should aid the STI in rallying and we might see 2700 tested again.
S&P 500, Weekly, 9 October 2009
Last week we pointed out that the S&P 500 weekly had a bearish price action
formation. We were anticipating a test of the 1000 to 992 region which is a
confluence of the major trend line, round number & also support ('target zone' on
chart). This scenario did not materialise. The inability to decline despite clearly
bearish price action can be interpreted as an indication of strength for the S&P 500.
Last week's close at 1071, was above the previous week's high of 1069 and
indicates a likely shift in momentum. The 1075 to 1080 swing high region is the next
upside target. We anticipate a test of these recent swing highs. There is minor
support at 1060 which might be used as a base to push higher.
STI, Weekly, 12 October 2009
We are using the STI weekly to give a clearer picture of price action and have laid out
a brief scenario analysis laid out in the conclusion.
The STI has rebounded from 2580 after triggering minor downside breakout by
trading below 2615.
As of this writing, the STI has turned 2660 from resistance into support. This, in
combination with the CRB breaking out of its consolidation to the upside probably
indicates a possible retest of 2700.
We continue to await price action to confirm a break of key support (2542) or
resistance (2700 to 2707).
Dollar Index, Daily, 9 October 2009
Over the course of last week, the Dollar rejected the 76.00 region. This is the second
test of the 76.00 region. Price might be forming a potential double-bottom base here.
We will need to give the market more time to see how it unfolds.
We mentioned before that there is a slew of resistance zones between 76.00 to
78.00 and it will not be easy for the Dollar to appreciate.
Overall, the broad trend for the Dollar remains bearish in accordance with the
gradient of the 50 day moving average. This, and also the fact that overhead
resistance is heavy should continue to give the Dollar a downside bias.
What might give us a heads up that the trend is shifting is if the Dollar closes above
its 50 day MA.
CRB Index, Daily, 9 October 2009
The CRB has broken out to the upside. The price breakout is circled in the chart
above. We are already seeing equity markets push higher because of this. For the
CRB, we would like to see confirmation by either a close above Friday's (9Oct09)
high or a retest and push off from the upside trend line.
Confirmation is required because the breakout is still fresh and there is still a
possibility that this is a false break. It is the market’s indication that there is continued
buying coming in and this is necessary if the CRB is to continue pushing higher.
The equity market should continue to push higher if the CRB breakout holds up.
While the breakout on its own is positive for the stock market. The Dollar, as
mentioned above is forming a potential base. Given the strong inverse correlation
between the Dollar and commodity market, there is some risk that the CRB might
retrace back into the consolidation range should the USD push higher.
Conclusion
Despite bearish price action in the weekly charts for the S&P 500 we have seen
momentum push to the upside. The ability to push higher strongly despite bearish
price action indicates strength is present. We also have seen the STI attempt to push
below 2615 (to 2580), and subsequently push back up higher. Currently it is trading
above 2660 which was intra-day resistance.
Over the week, the commodity market broke out of its consolidation to the upside.
This possibly might have fueled the equity market, at least the S&P 500.
However, the breakout is still fresh and there is risk that it might be a false break. We
would like to see the CRB's upper trend line hold up or a close above Friday's
(9Oct09) high as confirmation.
For the STI, the 2700 region has been capping any advance for almost 3 months
now and is very strong resistance. Should the STI manage to close above 2700
decisively, it should cause buying to come in from the sidelines.
There are 2 scenarios here:
(1) Strong CRB – Weak/Flat Dollar.
This should imply that the equity market has a strong tail wind to push higher.
The S&P 500's momentum is strong and with a strong CRB – weak Dollar, it
should test the 1075 to 1080 region. The STI might test the 2700 region in this
scenario
(2) Weak CRB – Rising Dollar.
The Dollar pushes higher and the CRB retraces back into its consolidation range.
This would be a headwind for the equity market. Support for the S&P 500 in this
case would be 1050 and for the STI, the 2660 and 2630 region.
DISCLAIMER:
The information contained in this publication has been obtained from public sources which Phillip Securities Research has no reason to believe are unreliable and any analysis, forecasts, projections, expectations and opinions (collectively the "Research") contained in this publication are based on such information and are expressions of belief only. Phillip Securities Research has not verified this information and no representation or warranty, express or implied, is made that such information or Research is accurate, complete or verified or should be relied upon as such. Any such information or Research contained in this publication is subject to change, and Phillip Securities Research shall not have any responsibility to maintain the information or Research made available or to supply any corrections, updates or releases in connection therewith. In no event will Phillip Securities Research be liable for any special, indirect, incidental or consequential damages which may be incurred from the use of the information or Research made available, even if it has been advised of the possibility of such damages.
Any opinions, forecasts, assumptions, estimates, valuations and prices contained in this material are as of the date indicated and are subject to change at any time without prior notice.
This material is intended for general circulation only and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The products mentioned in this material may not be suitable for all investors and a person receiving or reading this material should seek advice from a financial adviser regarding the suitability of such products, taking into account the specific investment objectives, financial situation or particular needs of that person, before making a commitment to invest in any of such products.
This publication should not be relied upon as authoritative without further being subject to the recipient's own independent verification and exercise of judgment. The fact that this publication has been made available constitutes neither a recommendation to enter into a particular transaction nor a representation that any product described in this material is suitable or appropriate for the recipient. Recipients should be aware that many of the products which may be described in this publication involve significant risks and may not be suitable for all investors, and that any decision to enter into transactions involving such products should not be made unless all such risks are understood and an independent determination has been made that such transactions would be appropriate. Any discussion of the risks contained herein with respect to any product should not be considered to be a disclosure of all risks or a complete discussion of such risks.
Nothing in this report shall be construed to be an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities mentioned in this research should take into account existing public information, including any registered prospectus in respect of such security.
© 2006 Phillip Securities Research Private Limited.
|
Up to-date current Financial News for Investors
