STI Sideway To Bearish Tone

US market had a bad closing last night.  Dow plunged by 243 points.  It seems like we are seeing more volatility recently.  With earnings starting to disappoint investors it is likely that the volatility will continue.
For Singapore, the STI has held pretty well.  Last Friday’s 200 points drop in Dow Jones Industrial Average did not bring about a sell down on Monday.  It will definitely be a gap down today.   So where is the support?
The first support is at 2977 the pivot low made on 6 Sep.  The next support will be at the 38.2% Fibonacci retracement level of 2938.  If 2938 gives way, the index is likely to test the 61.8% level of 2846
MACD is bearish at the moment.  Having tried to make a bullish crossover, the MACD histogram looks to be turning down.  Such pattern failure usually brings in the sellers.
One slightly positive indicator is the ADX indicator.  It is not shouting a sell signal right now with ADX below 20 level indicating that there is no strong trend pattern at the momen…

The New Depression

Credit growth facilitates economic growth.  When credit is expanding consumers can now borrow more and invest more.  Increasing consumption and investment creates jobs and boost income and profits.  Credit expansion also causes asset prices to go up.  These assets include stocks and property.  As net worth of the public goes up the asset owners can now use what they own as collateral to borrow more.  This is a cycle that feeds on itself and leads to increase spending, investment, job creation and wealth.  So long as the credit keeps expanding, the party can continue.

Between mid 2008 and first quarter of 2011, the federal government expanded its debt by $4.4 trillion.  This helps to keep the economy from breaking down when private sector became incapable of repaying its debt.   Before the crisis that erupt in 2008, every time the economy slowed or crisis erupted, the Fed will take steps to encourage credit expansion and every time the economy reaccelerated.  In actual fact, all the ste…

STI In Sideway Trend

Singapore stock market started the year on a positive note.  The Straits Times Index started at 2646 on the first day of trading and is now at 2791, sitting slightly above its 50 day and 100 day moving averages.   
The current technical charts do not paint a picture of sustained rally at this point.  The 14 day ADX is well below the 20 level mark, indicating that there is no strong trend at this stage both to the upside or downside.  The index is likely to move sideways and the resistance and support is at 2800 and 2640 respectively.
The 2 day RSI is moving towards overbought territory suggesting that we will see some pullback next week.  Another point to note that there the recent rally is made on slightly lower volume.  This shows that market conviction is not there and it supports the pullback scenario next week.

Time Based Index Trading Method

There is a market saying that one should sell in May and go away.   This year, this theory proved to be a good advice.  Let’s do a study on STI index to see how this strategy pans out.   For simplicity, let’s assume the following trading rules:
a.  Long Trading Rules: Buy STI index in the beginning of Oct every year.Set a stop loss of 10%If stop loss is not triggered by May next year, close the long position
b.  Short Trading Rules: Short STI index in the beginning of May every year.Set a stop loss of 10%If stop loss is not triggered by Oct in the same year, close the short position
So how is our position if we follow these rules?  The table below shows the trading result:
Position Entry Date Entry Price Exit Date Exit Price % Change Short 5/2/1990 1458.80 10/1/1990 1103.40 24.36 Long 10/1/1990 1103.40 5/2/1991 1557.20 41.13