Singapore: A reprieve may be in sight for the near term

The Straits Times Index (STI) fell to a 26 month low of 2307 last week when global markets went into a state of frenzied selling. The heightened volatility also caused the VIX indicator to spike to a high of 42 - a level not seen since Oct 2002.

A reprieve may be in sight for the near term. With the STI now rebounding nearly 300 points from the low of 2307 in just under 3 days, the current momentum might carry the bear rally to 2672 and then above 2700 in the next few weeks. The 2672 level also coincides with the 38.2% Fibonnaci retracement of the sell down from 3267-2307.

At this juncture, we believe this leg of the market rebound is Wave-A of the small cycle. From here, we expect to see a Wave B consolidation before STI resumes its uptrend or Wave-C towards 2672 or higher.


Daily STI chart as at 22 September 2008, charted by Ken Tai.

Japanese Candlesticks suggest that the STI should hold its ground at 2307 based on its ‘hammer’ formation. Notwithstanding, investors should not take this view as carte blanche to take on excessive portfolio risks; there is still downside risk to 2100 before we can safely reverse our view that the market crises is over. Long SGX, Chartered Semi-Conductor and Olam.

Commentary and article contributed by Mr. Ken Tai. He is an Analyst of a large stock-broking firm in Singapore.