Time for a breather

As at last week, the FSSTI has retraced 38% of its decline from 3905 to Oct 08’s low of 1477. The 38% retracement is the 2400 level. While the index breached the level on an intra-day basis, it had not closed above that level. The 38% retracement is the most significant resistance level since the index's decline from 3905 and the least we expect is a 5% correction from the recent peak of 2424. The price oscillator index shows the index at an extremely overbought level. Based on that alone, we would advice readers to reduce beta plays and switch to defensive stocks. We had previously labelled the rebound off 2194 as a wave v of 3. We are still of the same view and expect profit taking to set in the coming week. Incidentally, the Hang Seng Index is also at a critical 38% retracement level and price action on that index will have a significant bearing on the FSSTI.

Most of the stocks that we recommended in mid-May, such as City Dev, Wing Tai, SGX, Yangzejiang and Straits Asia Resources had reached our target prices. Expect a pullback in these stocks along with the index.


FSSTI and HSI at 38% Retracement Levels


Source: NextView















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