Saturday, September 21, 2013

STI Index - the "pivot" point

Hi there,

Today I received a friend's enquiry on my view on STI index's direction, to be frank, I don't have an answer as the STI is currently in a pivot point, so all I can say is if it goes above e "pivot" it should continue its uptrend, if it goes below, it may only be a consolidation stage or if it breaks below 50days MA, then it will go downtrend.

So what is this "pivot" point I am referring to? It is the Fibonacci 78.6% line which I've drawn, based on the estimated "high" & "low" of STI's extreme in the most recent 2 years.
If you see the chart below, you can see that 0% Fibonacci line basically is the point when STI was 2521 on 5 Oct 2011, and 100% Fibonacci line is when STI was 3464 on 22 May 2013.


Let's "zoom" into our next chart below, to see the 6months view of our current STI.
As one can see, we are at that dotted Fibonacci 78.6% line, just a tiny bit below, this line is a important resistance that I called "pivot" point. If you look at 12 Jul, 24 Jul & 2 Aug this year, when the STI "flirts" around the pivot, but its candle never fully above or below the pivot. Now we are back at the same point, thus I would prefer to sit at the sideline to watch for clearer signals on the direction of STI before I consider my next trade.
 
1 signal to note below, the Force Index technical indicator, the bullish force seem a little stronger than the previous Force "peak" where my arrow source is, at 2 May 13. This tends to imply a higher potential for more upside to come.
 
In terms of RSI, which measures only potential peak & bottom for a "consolidation" price movement, such as the past 5 months, we maybe due for a peak. To note, this apply on for consolidation movement (where price move up & down, without a major trend), a major upward movement such as STI between Nov - Dec end 2012, the RSI will fail, as RSI slowly move down to 70% but price shoot up from 2950 to 3190 at end of 2012.
 


Last few things to consider, fundamentally STI current Price Earning Ration (PE Ratio) is at 13.34, this is around the median point of STI's PE ratio. STI's past PE has fluctuate to under 10 to around 25, during dot-com bubble it went even higher. So 13 suggests a reasonable, value PE to enter.
Still this is a lagging measure, as earnings are only reported a quarter later, so even if price remains, earning drops, PE ratio will still rise.
 
And lastly, October 13 is the "showdown" between Obama Democrat government vs Republican controlled Congress, when the government has to ask for increase of debt ceiling again, to fund its Fiscal 2014 budget. Expect a roller coaster, not sure if it will be similar to how 2012 was...
 
Locally in Singapore, housing markets seemed to be "choking" with the leverage been tightened by SG government, lesser people can borrow enough to buy the new launches, resales are worse with low volume and Cash Over Value (COV) reduced to manageable under $20-30k range. We may soon see discounts by developers soon, to clear their launches, and should there be any economy hipcup, prices may finally start to drop a little. Right now, it is hard to go higher, without the support of leverage.
 
That's all for this post, good luck trading!
 
Regards,
Tony
 

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