Monday 30 September 2013

Where is a good point to pick up STI? 3150!

US market has indeed performed quite poorly after the QE no tapering incident. The market is cruel. Just when everybody thought that the market might be up after FED chairman Ben Bernanke announced not to taper the QE, the market dropped after the announcement. So far Dow Jones has dropped about 450 points from the top and so many problems seem to crop up recently.

Will October suffer a stock market panic? With the US government shutdown dateline on Tuesday, 1 October and the debt ceiling dateline on Thursday, 17 October, it seems the market is heading for a rough ride.

S&P Capital IQ reported that  the last time there was a government shutdown was Dec. 13, 1995 to Jan. 10, 1996, and the S&P 500 dropped 3.7% over that period, only to snap back up 10.6% by mid-February.

So with the backdrop of problems, what is our view of the market?

In August, we asked all to accumulate some stocks when STI is at 3000 and when KLCI is at 1700. We think that anything below that point is a bonus. Looking back we have been quite accurate with our forecasts. This was our last article published stating our forecast then:

Despite all the problems in US, we do not think that STI will be heading towards 3000 again. In fact, we do think within these few months, STI will try to attempt to break 3300. We shall see whether it breaks.

We do feel that STI has a support at 3150. There is a chance of STI rebounding from 3150 should it reach.

5 trading advice:

1) Should STI reach 3150, you may want to pick up some stocks.
2) If stocks rebound from there, do accumulate stocks along the way.
3) If stocks continue to drop, do consider to go in with larger position size when it is in the 3000-3100 region.
4) Sell stocks near 3300 if you are a short term or mid term trader.
5) Focus on STI component stocks or energy sector stocks or mid cap stocks that have good earnings should 3150 be reached.

Fundamentally, we do think that any problems in the US congress should be solved. The republicans would not allow US economy to collapse or the government to face a shutdown. They know the consequences of a backlash by the public should they allow it to happen. And they would never want to risk the next election when President Obama steps down 3 years later.

So any volatility or consolidation that happens to the market is a good buying opportunity to us! Do make use of such an opportunity in October to buy the stocks should the market drops. Do not dump them if there is a panic. Remember the lesson with the last US government shutdown that happened in 1995. The market rallied up 10.6% in the following month after the shutdown. History might repeat itself should it happened.

And US economy is recovering and shows signs of bursting now. Based on our research, we do expect this Friday's job report to be very good. The non farm payroll report should be better than what the estimates are.

Daniel Loh’s Upcoming Seminar:  “Do you wish to know the 2 Stocks Daniel Loh is watching after spotting Oceansky recently?” is now open for registration.
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