Market Shot Up- The Direction

Trading should be focused on blue chips in sectors which are often in the news as a technical bounce is long overdue

The old Jan 2000 peak of 2608 and May 2006 high of 2599 will act as strong support and traders should not wait for this level to be seen before taking positions.

At least 3 to 4 sectors – banking, offshore, commodities and property (due to its close link with banks and the economy) have and will continue to be subject to big price swings as they react to unceasing news on the US financial/housing turmoil, interest rates as well as oil price/commodity price movements.


To trade successfully we should be prepared to buy when these counters slump to near their year’s lows and be disciplined to wait for rebounds which never fail to come especially now that the STI is at year’s lows.

The market has been down for nearly 4 months after its strong 7-week rally in mid-March to early May and has been without any meaningful bounce since the brief 170-point rebound from around 2830 to near 3000 in mid-July.

Judging from the track record of almost monthly rebounds since the index peaked at 3831 on Oct 11 last year, the time for another technical rally should be near. The index rebounded in December, late January after the 700-point new year mini-crash from 3466 at year end to 2866 on Jan 22 (intra-day low of 2746).

The 400-point bounce to 3160 was short-lived but strong and the market continued to offer exciting trading chances in February before a quick plunge to 2750 again in mid-March. This was followed by the best rally so far this year taking the STI to near 3300 in early May.

Since then one after another support gave way and when the key 3000 psychological mark was finally lost in June it was downhill almost all the way with 2900, 2800 and 2750 falling like nine pins.

A new closing year’s low of 2691 (2688 intra-day) was recorded last week with the next strong support around 2600 area.

Although some traders prefer to wait for further falls, the smart trader should realise that the market has been without a bounce for more than a month and last Friday’s near 50-point rally is a signal that a good 150-200 point uptick should be coming soon.

The rebound could start from the May 2006 low of 2666 on the old STI or even if it is 2650, a 150-200 point rally should bring the market back to 2800-2850.

It is unlikely that DBS ($17.84) will fall back to its year’s $16.40 low if the STI finds support around 2650 and its trading range should be around $17.50-$18.50. UOB ($18.76) is also a buy around $18.50 and a trading sell when it moves above $19.50.

OCBC ($8.02) is close to its strong $8 support and can recover to $8.30-40. SGX ($6.25) should find strong support around $6 and could rally back to $7-$7.50 in anticipation of a bigger year-end rally.

Keppel Corp ($9.90) is unlikely to test its $9.29 March low before a rebound to around $10.50.

CityDev ($10.02) is again entering its strong $9.80-90 support with rebounds to $10.50-70 usually taking place.

Wilmar ($3.78) has also defended $3.50-60 support well and should move back to $4-$4.20 during the market rally.

Cosco ($2.24) should have bottomed out last month at $1.97 and rebound to $2.40-50.

The bottom line is that traders must be focused and be bold to see support coming in strongly at 2600-2650 which is obvious as this is has historical backing which implies it will not break easily.

Even 2750-2800 which has no multiyear support was defended so strongly in January and March and only gave way last month. In fact the STI (at 2720-2709 today) is closer to 2750-2800 than 2600-2650.

Whether the STI will break 2600 later should not be the issue now as the index is likely to bottom out at 2500 at worst or more likely at 2600 this year barring any unforeseen developments on Wall Street and the upside should be a minimum of 2900-3000 at year-end or early 2009.