SINGAPORE MARKET

Four quick-paced corrections ranging from 7% to 14% in last 3 months signal harder times for traders used to sustained rallies in past 5 years.

Judging from the market behaviour since the all-time STI peak of 3906 last Oct 10, resistance levels have become much easier to identify thansupport levels. The series of lower peaks starting from 3906 followed by 3842 in early November to 3622 a month later and finally to 3492-3482 at year-end does not bode well for a test of 3800-3900 anytime soon.

In fact 3906 may well mark a multi-year peak in the same class as 1288 in 1987, 1304 in 1990, 2138 in January 1994 and 2583 in January 2000. The latter will be an ultimate test of the support in the event of a major downmove, which is unlikely this year as there are higher support references at the May 2006 high of 2666 and last year’s double bottom at 2932 and 2962.

The subsequent peak after 2666 ie 3316 in February last year has failed to hold up after 3 tests since November indicating high probability of a test of the 3000 psychological level.

Another bearish sign is the sharp 271 point or 7.8% plunge from yearend’s 3482 to 3211 yesterday and not only that, the new FTSE STI which kicked off on Jan 10 had also started on a bearish footing being down to 3211 yesterday from 3344 on the last day of the old STI.

Thus the more predictable behaviour seen during last year’s correction phases is no longer here which would make it harder for traders to be convinced there are safe trading chances out there. Investors are even more cautious preferring to wait for signs of a final bottom before
moving in.

Are there signs the worst is over? The toll on banks and major brokerages balance sheets from the US sub-prime crisis appears to be getting worse after about a year in the news and the Fed has certainly been slow to react in its interest rate cuts.

Markets may interprete such moves as only short term measures that do no seem to reduce the risks of a US recession as evidenced from the earlier rate cuts which although excited players seen from strong Wall Street rallies ahead and/or after FOMC meetings, appear to have no positive impact on the US economy.

Now prospects of at least another 50 bp cut at the end-January FOMC meet are ignored and it appears only a strong stimulus package with significant tax cuts on top of a 75bp rate cut can bring back the hiding bulls.

Even then judging from the increasingly feebler run-ups after corrections in the last 3 months, the new STI has to overcome lower resistance levels starting from 3300, 3400 and 3500. The 3500-3600 levels may be too high to aspire at this stage and perhaps not until players regain confidence that the market has made a major bottom would they feel safe to resume aggressive buying.

There may be a window for a rally in the last week of January till Budget speech around mid-February depending on the generosity of the goodies that may well include tax cuts to circumvent the need for any stimulus package later on in the year in the event the US economy
takes a turn for the worse from the sub-prime woes.

But the technical picture does not suggest a strong sustainable rally is likely, judging from the major cracks in the uptrend seen especially in the last 3 months which had their origins in the July-August 19.7% plunge from 3688 to 2962 and even earlier in March when the index lost
11.6% in a week from 3316 to 2932.

Within a short 3 month span we have already seen 4 major pullbacks – 7% immediately after the Oct 10 record to 3633, another 14% plunge in Nov, an 8.9% fall in December and 7.8% pullback so far this year to 3211 yesterday.

At 3211 the STI is back to around its Aug 16 day’s high of 3215 on the eve of its memorable Aug 17 plunge to 2962. It closed at 3152 on Aug 16 after reaching a low of 3104. The next day it managed to shoot back to as high as 3179 after plunging to 2962 in mid-afternoon before
ending at 3131.

The 3130-3180 zone may thus be more comfortable levels for traders to start buying for a mild rally to around 3350-3400.