STI At Critical Levels

Volatility is back in the market. Dow went to 9787 levels during Thursday session, showing us how ugly the market can get when bad news hit the market especially when we have such a huge rally that took us from the March 2009 lows till the April 2010 highs.

For the STI index, the initial knee jerk reaction took the index below the up trend channel line. The index managed to recover some early losses and is now at 2821 level. This level is close to the up trend channel line.

Given Dow’s performance on Friday, it looks likely for the index to test 2700 level soon. If this support cannot hold, then the next critical level is 2424.

STI Update

STI hit a high of 2827 on Thursday but succumbed to selling pressure to close at 2802 on Friday.

Going towards the end of 2009, the index looks to be consolidating at current levels. The technical picture shows the MACD indicator below its signal line which is a bearish signal. The ADX has fallen to around 17 which correspond to the weakening of the uptrend. Short term stochastic is also giving a bearish signal and points to short term weakness.

Support is at 2770 and 2740 respectively. The break above the strong resistance at the 2700 to 2730 range is still valid. This indicates a target of 2900 which looks attainable.

STI is safe for now

Dubai’s announcement to restructure its biggest corporate debtor, Dubai World, and delay payment on some of the company’s US$59 billion of liabilities caused tremors across global stock market.

Singapore market was closed for holiday on Friday and did not bear the brunt of the global selling. Its impact will be felt on Monday on market open for business.


The technical charts are still showing a positive picture.





There is a high chance that the MACD indicator will move below its signal line in the coming week which will change the technical picture.


A look at the KST weekly indicator for STI showed a bearish crossover on 12 Oct 09.

If the index moves below 2600 then it will be very bearish. The last time the KST weekly indicator made a bearish crossover was on 28 July 2008. And the index dropped from a high of 2912 to 1473 before it made a bullish crossover again. Let’s see if the market is able to fend off a bear attack.

Singapore Market

STI index has stayed within a 200 points range since it broke the 2424 resistance level in mid July 09. The bulls pushed the index to 2700 on 4 Aug 09 but could not overcome the sellers that came in to take profit.

The market correction that analysts talked about has materialized. Investors have been buying on dips and that strategy seems to be working since March 09.

The technical charts are showing warning signs. –DI has just made a crossover with the +DI. MACD histogram has been fluctuating about the zero line which shows a directionless market. However the MACD indicator has recently pulled away from the signal line meaning that selling is gathering pace.

With Dow closing down 42 points on Friday, there will be some selling pressure early next week. Another thing to note is the strength in Japanese yen. USDJPY currency pair traded at a low of 89.50 before recovering slightly to close at 89.84. This will exert some pressure on the Japanese equity market next week as well as strength in yen is bad news for Japanese exporters.

The support level to watch is 2560, 2521 and 2424.

STI Update

Singapore market closed slightly below 2600 level on Friday. This was the first time the market made a series of “Black Candles” since it broke out of the 2424 level on 20 July 09.

Fibonacci retracement level is at 2527 (38.2%) and 2417 (61.8%) respectively.

RSI has dropped from overbought levels and is now at 57 level. There is no RSI divergence at this point and this suggests that the up trend is still intact.

MACD just made a bearish crossover. This indicates weakness in the near term.

+DI is still above –DI. However it looks set to go below the –DI.

The index is still above the uptrend line. Unless the index drops below this trend line, the market should continue to trend higher.

STI Update

Dow Industrial Average reached a high of 8839 in the opening minutes before succumbing to selling pressure. It lost all its gain and went into negative territory before buyers came in to bring up the index. Market closed at 8768, up 12 points for the whole session.

The non-farm payroll showed a decline of 345000, a better than expected number of job losses. However un-employment rates reached a high of 9.4%. This mixed picture also explains why the market closed near the unchanged mark.


Looking at the STI, it has recovered more than 50% of its downswing from May 08 till March 09. Immediate resistance is at 2571, 2663 and 2745 respectively. Support is at 2283, 2190 and 2094.

STI

STI made a spectacular recovery from its March 09 lows. The index climbed from a low of 1455 to reach a high of 2283 last Friday, a gain of 56%.

Technical indicators are showing a positive picture. The 50 day moving average has made a crossover with the 100 day moving average. MACD line is above its signal line. +DI is above the –DI with an ADX value that is above 30. Continuation of the bullish trend looks likely.

STI Update

We have a pullback of the index this week. STI dropped from 1896 to close at 1852 for the week. The index went below the 61.8% retracement level on Tuesday but was able to snap back from the losses.

As long as the index is able to hold above 1754 level, we still have a pattern of higher highs and higher lows. This bode well for the bulls.

The 50 day moving average is upward sloping and the index is still above this moving average line. Bears will not be aggressive in shorting the market with an upward sloping 50 day moving average. The bigger bears will come to the market if we see the index dropping below this average line.

One of the worrying sign is MACD indicator. This indicator just made a cross below its signal line.
Support level is at 1813 and 1754. Resistance is at 1868 and 1950.

STI Update

STI index retraced the complete downswing from 1780 to 1455. The index fell 13 points on Friday.

The index has stayed above its 50 day moving average for 5 trading days now. Any fall is healthy if the index can stay above its 50 day moving average.

A similar situation occurred in Jan 2009 where the index went above its 50 day moving average only to make a new low of 1455 on 10 Mar 09.

A bullish scenario will be for the index to fallback to its 50 day moving average before making a bullish move that takes out the high of 1780.

Support level is at 1711 and 1657 respectively. Resistance is at 1780, 1844 and 1959.

STI Update

DOW opened 2009 with a bang, going up 258 points to close above 9000 points for the first time since 5 Nov 08.

Singapore market also got off to a good start on Friday with the index closing above 1800 points.

The technical indicators are bullish at this point but do not seem to point to a sustainable rally.

The MACD indicator is still above its signal line which is a bullish sign. But one concern is that the indicator made a bullish crossover at the end of Oct 08 and may pullback anytime soon.

ADX indicator is still at the low end indicating that any rally will not be sustainable. The good thing for the bulls is that +DI is now above –DI. So there should be a short term rally.

RSI is also not at overbought level and there is still room for the market to go up.

Hence for the short term the market should be positive but mid and long term the market is still not in good shape unless we see further evidence on the technical charts.

Happy trading!

STI Statistics

Dow was down 313 points on Friday to close at 8378. The big plunge that was supposed to take place based on activity in the futures market did not happen. Dow futures plunged 550 points on Friday morning, triggering a temporary trading halt. A 313 points (3.6 percent) drop is therefore something that no one expected.

In Asia markets, Singapore STI drop 8.33%, Japan Nikkei drop 9.6%, Hong Kong Hang Seng drop 8.3%, South Korea drop 10.57%, Shanghai drop 1.92% and India drop 10.96%.
So the drop in US is mild considering what happened in Asia.

Looking at Singapore, STI has dropped 32% since the beginning of October. Let’s look at the index based on its performance from May to Oct and Oct to May period.

Based on records from 1988 till present, there was only 1 period where the index dropped more than 30% during the Oct to May period.

That happened during 1997 from Oct 97 to May 98. The lowest point during that period was 47% below the Oct 97 opening level. Following that decline, the index dropped by another 37% from May 98 to Oct 98.

Will we see another double digit percentage drop from Oct 08 to May 09? Based on the records that I am looking at, the chances of that happening is slim. STI have dropped 15% from Oct 07 to May 08 and another 25% from May 08 to Oct 08. The record shows that there was never a consecutive 3 periods of double digit percentage drop in the index. And when consecutive 2 periods of double digit percentage drop occurred, the next period was a rally. That occurred in 1998 (101% rally) and 2001 (30% rally). And both of these rallies stated in October.

STI Update

US market tried to overcome from market weakness on Friday. However at the close, it succumbed to market forces and Dow was down 127 points. At one point, the Dow index managed to put on a gain of nearly 300 points. The optimism could not hold and the index gave back all the gains plus some extra losses to end at 8852.

The STI index dropped 72 points on Friday in anticipation of further weakness in the US market. The index gave up all the gains made on the first 2 days of the week.

The index has broken through the 62% re-tracement level and is now heading towards the low of 1205 set in March 2003. The support level is at 1848 and 1793.

The daily chart is showing a potential for a double bottom. However the index needs to move above 2218 for the pattern to be valid.

STI Update

STI made a pivot low on 16 July and it has met a resistance at 3000 level. The market is not out of the woods yet.

STI is still trending downwards. Based on Fibonacci Analysis, the downside objective point is at 2546. There is also support at 2745 level, the low that was established on Jan 08 and Mar 08 respectively.

STI AD RSI

I received a request for analysis of STI using the AD line derived from the 30 stocks in the FTSE STI Index.



The 13 day AD RSI is now at 28.24 level. It is certainly oversold. If you apply the technique of buying the STI index when the AD RSI rises above the 30 level, you will be 9 winners and 2 losers and 2 trades that are still opened.

The trading record is shown below:

Entry Date	Entry Price	Exit Date	Exit Price	% Change	Draw Down %	Max Gain %	Bars Held
12-May-04	1807.89	10-Jun-04	1814.08	0.34	-6.5015	1.4912	20
19-May-04	1741.09	17-Jun-04	1827.60	4.97	-0.1373	5.3851	20
24-Oct-05	2249.57	22-Nov-05	2278.74	1.3	-2.6449	2.4262	20
24-May-06	2429.77	21-Jun-06	2322.98	-4.4	-6.25	1.1993	20
12-Jun-06	2328.31	10-Jul-06	2429.42	4.34	-2.1647	5.2867	20
16-Jun-06	2354.57	14-Jul-06	2373.58	0.81	-1.8534	4.3299	20
21-Aug-07	3320.72	18-Sep-07	3452.09	3.96	-2.7723	7.2617	20
27-Nov-07	3344.57	27-Dec-07	3469.11	3.72	-1.3069	8.2902	20
18-Jan-08	3073.76	19-Feb-08	3100.26	0.86	-10.6394	3.0734	20
24-Jan-08	3055.76	25-Feb-08	3048.64	-0.23	-6.4364	3.6806	20
12-Mar-08	2964.32	10-Apr-08	3089.72	4.23	-7.3663	7.3406	20
17-Jun-08	3036.92	Open	Open	-2.67	-3.7554	0.3392	9
26-Jun-08	2986.62	Open	Open	-1.03	-2.1345	0.9144	2

For more information on the AD RSI, please refer to my earlier post.

STI June Performance

This is the performance of STI in June from 1988 onwards.

Entry Date	Entry Price	Exit Date	Exit Price	% Change	Draw Down %	Max Gain %	Bars Held
6/1/1988	1006	6/30/1988	1093	8.62	0.00	8.62	18
6/1/1989	1279	6/30/1989	1308	2.23	-5.64	2.82	21
6/1/1990	1556	6/29/1990	1527	-1.85	-2.13	0.79	20
6/3/1991	1566	6/28/1991	1490	-4.84	-4.84	0.00	17
6/1/1992	1511	6/30/1992	1481	-1.95	-2.27	0.81	20
6/2/1993	1895	6/30/1993	1803	-4.88	-9.14	0.27	20
6/1/1994	2280	6/30/1994	2225	-2.43	-3.65	1.29	21
6/1/1995	2180	6/30/1995	2093	-3.97	-5.35	1.80	21
6/3/1996	2332	6/28/1996	2296	-1.55	-2.78	0.65	18
6/2/1997	2065	6/30/1997	1988	-3.74	-4.68	0.07	20
6/1/1998	1254	6/30/1998	1067	-14.94	-17.74	0.00	21
6/1/1999	1910	6/30/1999	2168	13.49	-0.37	15.88	21
6/1/2000	1810	6/30/2000	2038	12.61	-0.04	15.72	21
6/1/2001	1663	6/29/2001	1727	3.79	-1.08	3.79	20
6/3/2002	1677	6/28/2002	1553	-7.38	-9.34	0.27	19
6/2/2003	1367	6/30/2003	1448	5.92	-0.13	11.43	20
6/1/2004	1787	6/30/2004	1838	2.83	-1.13	3.22	20
6/1/2005	2169	6/30/2005	2213	1.99	-0.08	2.82	21
6/1/2006	2394	6/30/2006	2435	1.71	-4.86	2.17	21
6/1/2007	3548	6/29/2007	3548	0.02	-1.89	2.94	20

Out of 20 June months, we have 10 winners and 10 losers. Interestingly from 2000 onwards, STI performed quite ok in June except for 2002 where it was down 7%.

STI Updates

Cracks are appearing on the STI chart.



The index closed below the lower part of the Bollinger band on Friday. Not a good sign. The Bollinger band has narrowed significantly compared to a few weeks ago. Market is searching for a reason to breakout of the trading range. Now it seems like high oil price has given the Bears reason to come back to sell down the market.

The –DI went above the +DI on 22 May 08. However the ADX is still below 20. This means that the market is weakening but it has not changed into a down trend yet.

The MACD chart is also looking bearish, having made a crossover on 20 May 08.

RSI chart is near the oversold region. The index is most likely to stay in oversold region for a few more days before it can stage a rebound.

The next support level is the pivot point of 3033 set on 14 Apr 08.

STI Update

STI index broke closed at 3171 yesterday. It managed to break through 3200 but it could not stay above it.



Looking at the chart, the index needs to stay above 3130 which is the support line. This is also where the neckline resides. The index tried to break out of this neckline in early Apr but failed. It only managed to break this level after a pullback to 3035.

The index has moved from a low of 2745 on 17 Mar 08 to a high of 3181 on 7 Apr 08. Based on Fibonacci Retracement, the objective point for STI is at 3471.

STI Max Drop Investment Concept

Today is a down day again for STI. Not a good start to the year of the Rat.

I have received some emails on testing the max drop investment concept on the STI. So this is actually a continuation to my previous post on buying DOW Jones Industrial Average when it drops by 20%.

Instead of DOW, we are using STI index instead. Data is from June 10 1992 to Feb 11 2008.

The rules are:

Entry

1. Compute the highest price for the past 60 days. Lets call this H1
2. Note the lowest price today. Lets cal this L1
3. D1 = (H1-L1)/H1.
4. If D1 > 0.20 and there is no buy signal for the past 20 trading days, buy at the opening price on the next trading day
   

Exit

1. If position is showing a gain of 30%, close the trade or
2. If position has been open for 765 trading days (assuming 255 trading days per year), close the trade

The trading result is shown below:

The draw down in this case ranges from -0.87 to -50.5%. There were 11 cases where the 30% profit target was reached before the end of the 3 year holding period. The range of the draw down is too great for comfort. But do note that the probability of making a profit is still quite high at 85% if you ignore the trade that is still opened.

The trade made on 17 Jan 2008 so far has suffered a draw down of -11.3%. If we based on past statistics, maybe it will hit a draw down of -20%. This will imply a value of 2478.

Advance Decline Line For FTSE STI Stocks

In the world of technical analysis, there are numerous methods of judging whether a market participants are bullish or bearish. One such indicator is the advance and decline line. If we were to use this method to trade the Straits Times Index, can we make money?

The way I calculate the advance and decline line is as follows:

• Step 1. Obtain the number of gainers, number of losers and number of unchanged stocks that are in the 30 FTSE STI Index


• Step 2. Compute the difference between the number of gainers and number of losers


• Step 3. Compute the cumulative sum of the values obtained in Step 2.
  
• Step 4. Based on the series obtained in Step 3, compute a 13 day RSI. Lets call this AD RSI to differentiate it from normal RSI.

Below is the graph of the 13 Day AD RSI for the past 3 years.

There are only 8 instances whereby the AD RSI values drop below 30.

Lets formulate a simple trading rule based on this observation

• Whenever the AD RSI drops below 30 wait for AD RSI to rise above 30


• When AD RSI rise above 30, buy 1 lot of STI Index.


• Once long position is entered, hold the trade for 20 trading days before exiting.

Based on this simple trading method, we have the following trades




We are able to capture the rebound in Aug 07, Jan 08.

Lets see how the 2 opened trades perform next week.