Weaknesses ahead for Dow, S&P and STI
In the US session yesterday (21Oct09), we saw the Dow Jones Industrial Average &
S&P 500 show very bearish short term price action. The S&P 500 in particular
rejecting the 1100. The STI has also broken out of a consolidation pattern to the
downside (short term). We elaborate more on this in the report below.
S&P 500, Daily, 21 October 2009
In yesterday's (21Oct09) session, the S&P 500 closed lower on a large bearish
candle. This price action is very significant. Firstly, the range of the candle is large,
engulfing the previous 4 trading sessions. Secondly, it is also a rejection candle,
selling off strongly after testing the 1100 level intraday. Thirdly, it is the second test of
1100, making it a short term double top.
We are anticipating weakness at least in the short term with a price target in the
region of 1060 to 1070 where first support is. 1060 is also the 50% retracement of
this recent leg up from the bounce off 1020 and the 50 day moving average.
S&P 500, Daily, 21 October 2009
In the bigger picture, yesterday's (21Oct09) price action is comparatively small and
visibility is thus confined to the next few days at best. However, the small price action
also indicates that it is unlikely to be a significant topping formation at this point in
time. Odds are that this correction will be short term.
The one major indication that the uptrend is losing steam at this point in time is the
major trend line as indicated on the chart. This has held up since the beginning of the
rally in March09. A close below the major trend line and for it to turn from support into
resistance would at this point in time be the one factor that might indicate a shift in
the broad market bias.
STI, 1hour, 22 October 2009
Above is the 1hour chart of the STI. It is meant to give a shorter term perspective of
the market.
After the rejection of the 2740 level (high of 2739), what we have seen in the past few
days is a gradual decline in the STI. This has in turn formed a consolidation pattern
somewhat similar to the CRB index.
From the chart, the STI has broken out from the consolidation to the downside. There
are 3 levels of intra-day support for the STI and all 3 also happen to coincide
approximately with retracement levels from the recent run up in October09.
These are 2680 to 2677 (38.2%), 2660 to 2658 (50%) and 2640 to 2639 (61.8%).
The levels should provide the STI with some form of support to the downside, in
particular 2660 which has been key support/resistance for the past 3 months.
The one worrying point about this decline is that the 2700 level which has acted as
very strong resistance for the past 3 months has not held up as support. Usually
strong resistance holds up as strong support when price pushes above it.
Dollar Index, Daily, 21 October 2009
The Dollar Index closed lower last night (21Oct09), testing the 75.00 level. The trend
continues to be biased to the downside.
CRB Index, Daily, 21 October 2009
The CRB continues to push higher very strongly, testing 284 as resistance. The weak
Dollar – strong CRB relation is holding up strongly. This by right should be positive
for the equity market. However, as mentioned above, price action of the indices are
pointing towards weakness at least in the short term.
Conclusion
The most unusual thing about the overnight market action is the disconnect between
the equity market and the Dollar-CRB. The Dollar-CRB's price action is strongly
positive with the CRB posting a strong up day and Dollar continuing to decline.
In other words, the equity market ran into very strong resistance and sold off despite
the positive inter-market tailwind. Should the Dollar & CRB both continue their current
trends, it should continue to provide a positive back drop for the equity markets in
general when they do find a short-term base.
The other scenario would be that commodity prices are beginning to be perceived as
overly inflationary and detrimental to earnings. In which case the rising commodity
market would be detrimental to the stock market. This seems rather unlikely at this
point in time as the economy is not perceived to be at full capacity, neither has talk
about inflation appeared as news.
For the STI, we are watching the respective support regions for a possible bounce in
the 1hour charts. For the uptrend to continue, ideally we see a short term base
forming around the 2680, 2660 or 2640 levels. We will need to reassess the situation
if the STI manages to push below 2640.
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
