STI Rally Stalled

The STI has failed to maintain above the 1844 level, greatly reducing the odds of the recent rally continuing. The CRB index represents growth and influences STI direction. With the STI tracking the CRB index very closely, we advise investors to keep vigilant watch on the CRB. A decline to 208 on the CRB will likely take the STI lower with it. Support for the STI is at 1718, followed by 1600.


S&P 500, Daily, 13 January 2009



Last week we wrote that the S&P 500 has to maintain above the 900 level for the rally to continue being viable. This has not occurred and over the past week with the S&P 500 trading below 900. Closing below 900 indicates technical weakness and drastically lowers the odds of a rally.

There is good support at the 857 level and the short term decline of the S&P 500 should slow down there. A close below 857 would tell us that bearish momentum is stronger than expected and would take the S&P 500 to the next key support at 818.

951 and 818 continue to remain critical numbers. A close higher than 951 would indicate a high probability of a rally to at least 1007, while a close below 818 would take us to the November 2008 low of 741. In the mean time, the most probable scenario is for the S&P 500 to range trade between 857 and 918 again.


STI, Daily, 13 January 2009



The STI has broken below the 1844 level. This is the market telling us that the recent mini-rally had weak buying backing it. The current market conditions tell us that the STI will most likely range trade between 1844 and 1718, although in this case, a wide trading range between 1916 and 1718 is also acceptable.

The critical numbers, 1916 and 1600 remain in tact. A close above 1916 will take the STI to 2025 and a close below 1600 will take us to the 1473 October 2008 low.


CRB Index, Daily, 13 January 2009



We continue to urge investors to pay close attention to the CRB. The CRB currently represents growth that is essential to push equity markets higher.

Lately, equities as a whole have been tracking the CRB index almost on a one-to-one basis. The recent sharp run up in the equity markets coincided with the rally in the CRB off support at 208 and this current decline in equities is driven by the CRB decline off resistance around the 246 region.

There is no further support for the CRB other than the December 2008 lows at the 208 level. In addition, the overall trend is still down, which increases the probability of the CRB continuing to drift lower to 208.

Critical numbers for the CRB are 208 and the 246 to 252 region. A close below 208 would push short-term momentum in the direction of the downtrend and continue the decline while a close above the 246 to 252 region will take the CRB higher.

Should the CRB continue to decline, equities will almost surely follow suit at this juncture.

Conclusion
The STI and equities in general are tracking the movement of the CRB very closely at this juncture in the market and we strongly encourage investors to watch the CRB closely. Short-term momentum for the CRB is currently down and aligned with the long-term trend, making the probability of a drop to the 208 level high.

While the STI does respond to its respective support and resistance levels it is still greatly influenced by the CRB for its overall direction at this point in time. We will have to assess how the CRB reacts to 208 and also the respective movement of the STI when that happens.

In the mean time, we advise investors to be patient and wait for the trend to define itself more clearly before investing.

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