Friday, May 30, 2014

Where does the STI go from here? 30 May 2014

It's already 5 months into 2014. Personally the STI doesn't look very exciting to me at its current price.

There are a few reasons why I'm so interested in the STI.
1) I am Singaporean, I live in Singapore
2) Investments in the STI can be done in SGD
3) Investments in the STI can be done through an ETF
4) Capital outlay in SGD to buy 1 lot of the Nikko AM STI ETF is very low (100 X share price, so approximately ~$300)
5) Diversification (30 companies) and Access (Jardine companies have expensive tickers)
6) Dividend payouts

However, as much as I like the idea of the STI as an equity investment, I have to say that I am a humji investor. I don't like paying a lot for something, especially when I think that there is a high possibility of it being cheaper in the future.

When I say possibility, I think I really mean to say probability.

I am stalking the STI so that I can make personal investments, as well as investments for my sister, which I suppose gives me an even extra layer of humji-ness, because I want to make low-risk, high probability trades.

I'm going to show the daily, weekly and monthly charts of the STI, with just 2 simple indicators: the Bollinger Band and the Slow Stochastics.

The daily shows that current prices are at the upper edge of the Bollinger Band. They also show that the SS is in overbought territory.

The weekly shows a very similar scenario. Current prices at almost at the upper edge of the BB and the SS is clearly very bought.

The monthly is perhaps the least compelling of the lot. Prices are above the 20MA of the BB, but they are not at the upper edge of the BB, they are just merely in the upper half of the BB. SS does not show oversold or overbought, but it looks to be able to trend up a bit higher.

Facts: The daily and weekly picture is very clear, the odds are in favour that the market makes a short term and possibly a medium term correction moving forward. The monthly supports this probability as well, but the momentum does not bode as well.

Gut Feeling: Though I would personally give more credit to momentum than probabilities, momentum in the STI does not seem reliable lately. Haven't we been in the same place since 2011?

Forecast (completely unreliable): Short term bottom towards end of June, bigger intermediate bottom end July - August. This could lead to something bigger if it lines up or is affected by the global economy.

Underlying Thesis: Japan and China are imploding, and their implosion will rock the world and scare off investors who have been unhealthily risk-taking. In particular, US investors will reassess their own investments and come to realize that they are not immune to the same problems and risks that are affecting other economies, which will cause a rush out of risk assets. Looking for a turning point to occur anytime NOW, or in Q3.

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