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STI, Singapore stocks suffer biggest one day fall: what next?

Straits Times Index 3% down after Yuan shock

Straits Times Index (STI) suffered biggest one-day fall this year on China yuan shock on 12 Aug 2015. STI dropped by 90 points or near to 3%. However, this shouldn’t come as a surprise because I had, in many occasions and postings, stressed that STI support at 3300 was weak and it has a high chance of breaching this support to head towards next stronger one at 3050.

In an interview by Shin Min Daily on 27 August 2015, I was quoted in the newspaper and I had explicitly mentioned that STI will find support at around 3050 (low reached was 3058 during the sharp fall) and we should see some rebound around that price region.

 

 

Indeed, next day after the big drop, STI stages a rebound and close around 3100. This move, however, did not close the gap that was created due to yuan devalue.

STI gaps down following PBOC-Yuan devaluation move

STI low was 3058, rebound next day did not close gap created

What’s next? Will STI continue dropping?

There are few things we need to address always in stock analysis: Price and volume.

 

Trading volume during fall significantly higher

In a twitter post, I noted that the recent volume during the fall was much higher. This says that there are much more involvement during this selling. In a quiet market, price can drop on high or low volume. But when price dropped with high volume, this is usually not a good sign. Do consider that STI was not on an aggressive upwards swing previously. Thus those involved (buying) in the market are likely not speculators/contranians. I’m just afraid that these are genuine sellers who are taking profit or selling out their portfolio.

 

 

Price during fall was more aggressive

In a seminar with a group of high net worth investors on June 2015, I pointed out that STI was currently in a wedge pattern, price at the apex and eventually price will have to fall out of this wedge. We have seen a monthly close below this wedge support.

STI falls out of wedge chart pattern

STI out of the wedge

One thing to note: China devalues yuan is probably a driver to push STI down faster, but much before this piece of news, STI has pretty much broke support of 3300 (if you read my newspaper interview above). Thus I’m not surprised that my prediction came true.

 

Where is Straits Times Index heading next?

With the sell volume, current support of 3050 appears weak. We might see some retracement when price finally touches 3000-3030, however, this retracement might be an excuse for genuine seller to exit the market.

Therefore, once 3000 support gives way, 2750 is an attractive zone for buyers to reap some bargain.

 

Sectors to note

A look into sector heatmap, this round of drop, we could see financials (including property) sector took the most hit. I believe that sell down will continue into these 2 sectors, especially when property sector currently lacks driver. If US does raise rate, short term interest rate should rise too. This will directly affect property sector.

Consumer services sector is also going to be affected too. To quote Bloomberg, when yuan devalues, it is now more expensive for Chinese consumers to travel overseas and to buy luxurious items, properties, BMW, Rolex etc

SGX sector heatmap

Sector heatmap. Source: SGX

Sector heatmap second portion

Sector heatmap second portion

I will update further if 3000-3030 don’t appear to be holding. To get update, please follow me at http://www.twitter.com/terraseeds.

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