Straits Times Index, Hang Seng Index in new selling phase

New 52-week low signals deeper selling ahead

One of the topics I discussed in my Dec stock market outlook seminar with members of my community was the technical picture of the Straits Times Index. This was what I said at the time:

  1. August low 2740 was more than 20% correction from last April high which meant that the STI entered bear territory.
  2. Price action of STI can be visualised as zig-zag or down-up-down wave movement.
  3. From market top at 3550 last April to 2740 in August was a down-wave.
  4. Down-leg will be followed by up-wave.
  5. From 2740 till the event in December, price was still above 2740 which means market was in the up-wave.

 

One of the points I emphasised at that time was this ‘I don’t know when the next down will start but I know once price goes below 2740, we can confirm that the up-leg is over‘.

This chart below shows you what I am looking at.

Down move in STI breaking Aug low confirms retracement-consolidation over

Down move in STI breaking Aug low confirms retracement-consolidation over

 

Straits Times Index in ‘C’, brace for 40-60% correction

When we look at previous bear markets, we will find that price moves exactly this way, for instance during 1996-1999 Asian Financial Crisis.

STI chart 1996 - 1999

STI chart 1996 – 1999

And then from 2007 – 2009 during the Subprime Crisis.

STI chart 2007 - 2009

STI chart 2007 – 2009

This means that by breaking 2740, Straits Times Index is now in C territory. If history is a correct guide, be ready for a top to bottom correction of 40-60%

 

Hang Seng Index same setup

HSI is now in the ‘C’ phase and should visit lower lows.

Hang Seng Index breaks 'A' low, confirms in 'C' wave

Hang Seng Index breaks ‘A’ low, confirms in ‘C’ wave; orange is former 52-week low

If you were to look at individual stocks, many sold down on high volume. As a reminder,

Market corrections/crashes take on a life of their own especially when price is down this magnitude on high volume. As price falls, margin calls kick in which forces more selling by over-leveraged buyers. In the absence of buying interest, spreads may also widen for illiquid stocks.

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Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005.   Soh's Twitter account @sohtionghum was ranked #23 out of The Top 70 Twitter Accounts To Follow In 2015 by MahiFX.   Disclaimer notice: "I do not have a financial advisor's license. I am not qualified by any regulator to give financial advice. I do not know you the reader. Your investment means and motive may be different from me. My posts here are based on observations and meant for education. I am not responsible for for any consequence from your actions."
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