US Stock Market - More Weakness Ahead

Dow, S&P500 and Nasdaq index broke below their uptrend line on Friday. Volume has been picking up and this suggests real selling and not just profit taking.

The recent weakness started off from China when news broke that banks have been told to suspend lending. Although the suspension was not system wide, the market reacted nevertheless with Shanghai index moving down more then 3% and Dow closed nearly 1.1% lower. Adding to the uncertainty was US President Barack Obama proposal to overhaul US banks in order to avoid future financial crisis.

Technical charts are looking weak with MACD below its signal line and –DI above the +DI together with an increasing ADX value.

The support level for Dow is near the 10,000 level which is where the Fibonacci retracement is located. Expect to have more weakness next week.

US Market Update

Some negative signs are showing up in the technical charts for S&P500 index.

Firstly, the MACD indicator is about to make a bearish crossover. The –DI is above the +DI and RSI is seen to be turning down from overbought levels. All these signs point to a weaker market in the short term.

However having said that, the uptrend is still intact as the trend line connecting the lows is still not violated.

A test of the trend line is possible this week. A closed below the trend line is negative for the bulls whereas a successful test of the trend line followed by a rebound is a sign of trend continuation.

Let’s see how the market behave this week Happy trading!

Sentiment Indicator

Recently, I read a book that describes an indicator to measure the sentiment of the market. It uses data from data that is readily available from the CFTC website (http://www.cftc.gov).

This website provides a breakdown of each Tuesday’s open interest for markets in which 20 or more traders hold positions equal to or above the reporting levels established by CFTC.

This information is useful because market tops and bottoms occur during extreme optimism and pessimism.

An example of the information available is given below: (http://www.cftc.gov/dea/futures/deacmesf.htm)

This example shows futures position for Canadian Dollar traded in the CHICAGO MERCANTILE EXCHANGE.

The “COMMERCIAL” traders are those that make use of the futures contract for hedging purpose. “NON-COMMERCIAL” traders refer to speculators that operate in the futures market.

An example of a sentiment indicator is the %long indicator (based on non-commercial data) which is computed using the formula:

%long = (number of long contracts)/(number of long contracts + number of short contracts)

This is a contrarian indicator meaning that when majority of the speculators that are holding “Long” positions, the probability that the market has reached a top is higher.

For more information please refer to the book

http://www.amazon.com/Sentiment-Forex-Market-Indicators-Strategies/dp/0470208236/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1208178773&sr=8-1

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.

Market Correction Or Trend Reversal?

Dow Jones Industrial Average closed at 9712 on Friday down 249 points. The moved erased all the gains made on Thursday. The index closed below the uptrend channel and is at dangerous territory. The RSI is now at 45 level. Note that RSI has not fall below 40 level since Jul 09. MACD is showing bearish signal as well with the indicator below its signal line. -DI is set to cross the +DI, this may mark the beginning of the correction that the market has been expecting for some time now.

The next few trading days will be crucial. If the index is able to close within the
uptrend channel, it will be good for the bulls. If the index is not able to gather enough
momentum, then the correction looks set to test the low of 9378 set on 2 Oct 09.

SC Global

SC Global has come a long way since hitting a low of $0.295 on Mar 09. Prices tested $1.42 on 5 Oct 09 before rebounding to close at $1.63 on Friday 9 Oct 09.

SC Global is in the luxurious property sector. Sale of Seven Palms Sentosa Cove got underway and it managed to sell 6 out of 10 released units in a recent private preview. Transacted price range from $3,100-$3,400 psf with each unit costing $11m.

The technical charts are also showing improvements following the test of $1.42 on 5 Oct. Prices is on the rise and is set to test $1.77 level. MACD indicator is about to make a bullish crossover. However volume for the recent rebound has been on low volume which shows that market players are still not coming back in full force.

Last Friday, this counter makes a Doji pattern. If the price can break the $1.77 level on high volume, we could see $2.00 soon.