Inline with expectations. The Straits Times Index (FSSTI Index) hit a low of 2,211 although it eventually clawed backsome of its losses to lose 59 points in a fortnight, inching slightly below our former support level of 2,220 in the processbut performing inline with our bearish expectations – we had previously mentioned that a “correction is forthcoming” forthe index. Given that the present Wave A has yet to run its full course and with the MACD chart remaining bearish, weare of the opinion that the STI is set to lose further ground in the near-term.
The STI appears to be in the terminal stages of a sub-wave 4 of A, given that the rebound off the 2,211 level hasfulfilled the 61.8% fibonacci retracement of sub-wave 3 of A. With the impending sub-wave 5 of A expected to drag theSTI lower, we therefore recommend short-term traders with existing long positions to cash out of the market while thoselooking to accumulate should wait for lower levels.
Resistance at the 2,396 level – as depicted by a series of daily highs – is expected to hold firm. On the other hand,initial support is identified at the 2,211 – 2,218 region as outlined by the lower bollinger band. Additional support is alsoseen at the 2,094 level should the first support falter.
Shanghai Composite Index: The party continues
The rally in the Shanghai Composite Index (SHCOMP Index) was not within our expectations as we were forecastingWave A to drag the index down to lower levels. Given the ease of how the 100% fibonacci extension of Wave 1 at 2,808was broken above, however, we have revised our Wave Count and we now subscribe to the view that the present Wave5 is poised to push the index to higher ground.
Targeting the 3,077 mark. The 14-day ADX has trended up in sync with the rally in the index, signifying that the current(bullish) trend is gaining strength. Resistance is identified at the 161.8% fibonacci extension of Wave 1 at the 3,064 –3,077 area, a level that the index is targeting. Support, meanwhile, is located at the 2,841 – 2,844 range where the 14-day moving average and a series of daily lows are situated.
Hang Seng Index: Trend to turn bearish soon
Current rally may not last. With Wave A of the Hang Seng Index (HSI Index) appearing to have been completed whenit reached a low of 17,375 during last week, we have therefore labeled the ensuing rebound as a Wave B. However,with the falling 14-day ADX which signals that the present (bullish) trend is losing strength, we thus advocate a sell-onrallystrategy as we believe that the HSI could turn bearish any time soon.
Furthermore, initial resistance which is just around the corner at the 18,739 mark as represented by the 76.4%fibonacci retracement of Wave A is yet another testament that the risk-to-reward ratio is not favourable to those who arelooking to engage in long positions at current levels. Should the index start to lose ground as we have forecasted, initialsupport at the 17,912 – 18,069 area would first serve to cap any additional downside. Further support, meanwhile, isalso available at the 17,375 level.
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