Wednesday, March 4, 2009

Bank led STI crash

The 1500 level has a nostalgic tinge to those who had lived through the 1987 Black Monday crash as it was the high (1505 to be exact for the then ST Industrials Index) and over 20 years we are staring at this psychological number again.

When the new STI rebounded swiftly from the 1474 intra0-day day last October. Registering a much higher closing low of 1600, it was an assurance 1600 would not easily crack but 4 months later it finally gave way.

A rebound will still come about hopefully later this week taking the STI back to its previous 1570-1600 support as the RSI is now at 30 and if it goes down to the 20-28 levels last October automatically the market will bounce up.

The STI is also below the last Bollinger band today and it usually stays that way for a few days at most. Thus we should see some technical recovery before Friday and a trading signal should come once 1500 is broken and 1474 is tested.
In fact seldom we see 6-9% mini-crashes among key index stocks and this may tempt traders to pick up some blue chips today. The biggest index loser so far is Capitaland ($1.80), down 9.1% followed by UOB ($9.16), down 8.3% and DBS ($7.37) down 6%.

Players who had made quick trading gains oftentimes through day trading will reappear once they see the stocks settling into predictable trading ranges eg UOB has been range trading around $10.10-$10.50 in the last one week or so, offering minor but decent gains which are however nothing compared to the losses for those who carried their positions over the weekend.

Bank shares could soon establish new, albeit lower trading bands which might even lure longer term investors with a 2-3 year investment horizon to begin minor accumulation as we could see another major bottom this round which might not be seen again until a few months' time.

All the 3 banks tested major lows at least 2-3 times during crisis periods ie Asian crisis in 1997-98 and the sprawling bear market of 2000-2003 which had multiple bearish events from dot.com crash to 9-11, Iraq war and Sars.

Thus it may not be bad timing to begin bargain hunting during this bottoming out phase as the next 1 or 2 bottoms would be within single percentage differences.

However banks are well-known to be particularly sensitive to poor economic outlook and with the possibility of as much as an 8% GDP shrinkage this year, which had not been imagined until now, their final bottoms would usually come just before the economy bottoms out.

This had taken place around Sept 1998, Sept 2001 and finally March 2003 when bank shares and the STI as well bottomed out at about the same time the worst of the recession was about to be over.

DBS ($7.36) has broken 2 key historical supports - last October's $7.59 low and the 2001 low of $7.80 with the next line of defence at the 2003 low of $7.07. In fact there are slightly higher technical support around $7.10-30 which are key numbers in the mid to late 90s, which should be tempting enough for long term investors to take a serious look at.

UOB ($9.16) has fared worse this time as it broke through the 2003 low of $9.25 (STI around 1200 then) with a long line of defence around $9.40-$9.90 throughout the mid-90s and in 2000 ($9.40) smashed through easily in one day. It plunged to a slow as $9.04 around 3.30pm. Next support would be at the 2001 low of $8.50 and this should not be easy meat to crack as it is underpinned by the mid-90s series of support at $8.15-35.

OCBC ($4.25) will be staring at sub-$4 support if the nearest multi year support of $4.02 (2002 low) gives way. Next support around $3.88-94 should hold as it is close enough to the $3.73-80 highs in the mid-90s prior to the Asian crisis. It also fell to as low as $4.20 around 3.30pm.

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