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:
- August low 2740 was more than 20% correction from last April high which meant that the STI entered bear territory.
- Price action of STI can be visualised as zig-zag or down-up-down wave movement.
- From market top at 3550 last April to 2740 in August was a down-wave.
- Down-leg will be followed by up-wave.
- 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.
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.
And then from 2007 – 2009 during the Subprime Crisis.
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.
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.
Director, TerraSeeds Market Technician Pte Ltd. Trader, investor. @sohtionghum was picked ‘Top 70 Forex Twitter in 2015’. Operates multiple strategies.
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