Sentiment for Singapore stock market to remain weak in the near term at least

After seeing a sharp selldown last week, the Singapore stock market attempted to stage a rebound on Monday after lunch.  The rebound lasted 2 sessions only and quickly fizzled out after Tuesday lunch time as rumours spread of trading limit curbs being imposed by various brokers, especially for penny stocks with high trading volume.  How true these rumours are does not matter anymore as the market reacted with a rather clear message……most stocks, especially small caps corrected sharply again after lunch.

Most people will recall the saying that when penny stocks rally strongly within a short span, it is usually a signal that the ongoing broad market rally may come to an end soon. The rationale for this saying is that after better quality mid or big cap stocks rallied, investors find it hard to look for value in these mid or big cap stocks but are reluctant to leave the market.  So they start to put money into “riskier” stocks, especially penny stocks which have not moved much in terms of stock price.  Since penny stock trading volume is much thinner than big cap stocks.  When money is “poured” into these stocks, they will rally sharply within a short period of time.  But if the fundamentals of the stocks have not changed at all during the rally……it will possibly see a sharp correction once investors begin to examine or realize the true value of the penny stocks.

Signals that market sentiment in the near term expected to remain weak:

1.More and more stocks have broken near term support level on high sell down volume

Watch for the near term support of market leaders for each sector and see if the support is broken.  For example, leaders for penny stocks such as Baker Tech (support 0.42) and  Jade (support 0.365), watch closely and see if the support levels can hold up.  China stocks in generally are not doing well with lower lows being created over the past one month, support levels are broken and moving averages trending down.

2.After announcing good results, stock price do not react positively

This is a negative divergence signal and we are also seeing more of this sign now.

3.Initiate BUY or target price upgrade reports failed to move stock

Today, saw that DBS initiate BUY call on china lifestyle…..the stock opened gap down 1.5 cents…..definitely not a good sign.  If you have been following the market, you would know that when DBS initiates BUY usually the stock will gap UP and rally…..so again this is another negative sentiment signal.

4. Parabolic SAR (technical analysis trending indicator)

I like to use parabolic SAR to get a sense of market trend in the near term.  My indicator shows that 1053 securities have negative signal yesterday compared to 572 securities 10 days ago.  This means to the negative sentiment ratio has doubled over the past 10 days.

In short, the bears seems stronger than the bulls for the time being……trade with care.

Article by Stephen Yong

Has the bull run in Asian stock markets ended?

Stocks in Asia markets suffered one of the worst sell-off for the year last week.

Straits Times Index (STI) last week fell from a weekly high of 3665 to 3492, down about 173 points or about 4.7%.  Hang Seng Index fell from 23472 to 22570, down about 902 points or about 3.8%.  Kuala Lumpur Composite Index fared better, dropping from weekly high of 1392 to 1355, down about 37 points or about 2.7%.  

But analysts and investors may still have different opinion as to whether the recent bull run has actually ended…… Some investors may feel that a weakening US economy would continue to depress Asia markets since there are many manufacturers from Asia who are still dependent on the US consumer market.

However, there are some who think otherwise, that Asia economy is no longer as dependent on the US economy as 10 or 20 years ago and that the present housing and credit problem that the US economy is facing is purely a domestic problem.  Additionally, corporate earnings from Asian companies remained strong with low gearing and stronger balance sheets compared to the period before the Asian financial crisis.

Which ever side they are on, most people may agree that more volatility is expected in Asian markets in the near term before things stabilize and hopefully after that……improve again.

For short term traders, there could still be opportunities to trade in the near term.  Personally, I would be combining stochastics and price patterns to trade the market in the near term.  

I would like to see stochastics of hot stocks (those hitting new highs recently) hitting oversold levels (below 25) and then cutting back up above oversold levels.  Buy signal would only be triggered if the stock price breakout of recent high.  Recent high is subjective and depends on the price chart.  Very often, it could be the prior day high when the stochastics cuts back up.

Metastock formulas - combining stochastics with moving averages

Metastock is one of the best softwares to scan for technical signals. There are many technical indicators to choose from such as moving averages, RSI, parabolic SAR, bollinger band, ADX line, directional movement index, stochastics, MACD and MACD histogram.
You can set up your own metastock formulas to look for specific technical signals for singapore, malaysia or hong kong stock price movements. Combining the technical indicators with candlestick charts and trendline for stock prices can further improve your trading accuracies.

I will share with you here one of my favourite formulas.  It's a simple and yet effective metastock formula :

Mov(C,13,E)> Mov(C,26,E) AND Cross(Stoch(5,3), (Mov((Stoch(5,3)),3,S))) AND Stoch(5,3)<25

What does the above formula do? Well it basically scans for uptrend stocks (with 13 days above 26 days exponential moving averages) which maybe be temporarily sold down (stochastics at oversold level and cutting up again) and could be due for a rebound. So look for the most recent resistance and wait for the breakout to trigger buy signal.

Happy Trading.

Article by Stephen Yong