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

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