Chinese stocks tumble over 5% may rebound

Chinese shares tumbling over 5 percent and Japanese stocks edging down after the country's opposition party came to power in a landslide victory.

Shanghai's market was hit with another bout of heavy selling, reflecting unease about government measures that could slow the liquidity that's sent the market surging this year.

SSE A SHARE IDX (Corrected almost 50% ...currently sitting on the trendline support...may rebound)

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STI - sell into strength

Despite the slightly firmer opening, the STI soon succumbed to profit-taking pressure, which gradually grew over the morning. By the mid-day close, the benchmark index was off 1.2% at 2611.77, although off its intraday low of 2606.05.

Volume was little changed from last Friday's morning session with 1663m units traded, but losers overwhelmed gainers by over 2.5 to 1. Hence it was no surprise that only three of the FTST sub-indices were in the black.

On the technical front, the profit-taking was not unexpected ? the price action last Friday had formed a doji star, which suggested that the market looks pretty indecisive at the moment.
Investors were probably anticipating a dearth of newsflow with the end of the results season (for those companies who have their financial year end in Jun).

But intraday technical indicators are signaling a possible reversal in sentiment ? we may see more bargain hunting in the afternoon if Europe opens positively.

We peg the immediate support at 2601 (psychological and centre line of the Bollinger Band), ahead of 2521 (mid-Aug low and also the lower Bollinger Band). On the upside, the immediate cap is at 2681 (50% retracement of 3906-1455 plunge), ahead of 2700 (psychological).

We also suggested that S-chips and offshore & marine stocks would very likely rise and both sectors have seen sporadic interest. We expect that to continue into this week. However, index stocks have lost some of their momentum and market breadth is now lower than at prior peaks. Our preferred stance is to sell into strength for most index stocks.

US indices have very likely completed a wave 4 move and the DJIA and S&P 500 will very likely break out next week. However, we lower our upside target for the DJIA from 10,000-10,100 towards 9,800-9,900.

Some accumualtion going on at Z-Obee?

Z-Obee=$0.12 (Some accumualtion going on at 0.12?)

Possible STI Weakness Ahead, Driven by S&P 500

The STI is trading within the range of the week ending 7August09 (2700 and 2542). For there to be clear directional movement we will need to see a clean breakout in either direction. The S&P 500’s price action indicates that it might be in the midst of putting in a top. Should we see a weak CRB and a falling S&P 500, the STI should follow suit and decline as well.

Over the past 2 days, the S&P 500 has rejected the 1035 region twice. From the chart, we have 2 shooting stars in a row. Although the sessions closed flat for the day, the rejection of 1035 for 2 consecutive days indicates the inability to push higher in the short term.

The STI will have to contend with 2650 as resistance if we are to see a push to 2700. While the STI has been trading somewhat different from the S&P 500, we cannot ignore the potential topping formation that is present in a major index such as the S&P 500.

We would ideally like to see a divergence top in the STI as well via a push to 2700. This would give more confirmation that the STI might be correcting soon. However, with the potential top in the S&P 500, there is a possibility we might not see a STI top materialise.

For now, we will have to pay attention to the S&P 500 to see if it can confirm the divergence. A strong drop off in the S&P 500 should add pressure to the STI even though their correlation has not been very strong lately.

This also implies that 2700 is key resistance and 2542 key support.

STI strategy: sizeable correction may be due, if history repeats

MSCI Singapore fell 1.7% in August, similar to the MSCI Asia-Pacific ex-Japan Index fall. Average daily volume rose 20% MoM and 58% YoY to S$1,893m. Consumer staples was the best performing sector, up 6.5% MoM; telecoms the worst, down 8.5%. The market is trading at 18.4x/14.8x 2009/10E PE.

Actual Q2 real GDP growth was -3.5% YoY, better than the flash estimate of -3.7%. Consensus expected a downward revision following weak manufacturing production figures for June. Both private consumption and investment are still down 3.7% and 7.2% YoY, respectively, but less than the -4.2% and -15.1% in Q1, implying sharp seasonally adjusted increases on the quarter.

For Q209, 50% of stocks (by market cap) reported higher than expectations versus 10% below. Sectors that reported meaningfully higher- than-expected results were banks, offshore, media, healthcare, and commodities. Meanwhile, primary residential sales set a new record of 2,767 units in July.

The FSSTI has risen 80% from its trough in March. The speed and magnitude of the market collapse and the subsequent rally is reminiscent of the Asian Crisis. Between Sep 98 and Jan 99, the index rose 90% and gave back 35% of the gains over three weeks, before resuming the rally. This time, if history is repeated, giving up one-third of the gain would lower the FSSTI to 2,280. We remain positive on a 12-18M view. We believe policy tightening is unlikely, growth is not due for a double-dip, and valuations are not unduly dear. Incorporating EPS upgrades and rolling our target to end-2010, we see the FSSTI at 2,960 by end-2010.

ChinaMilk take profit

ChinaMilk=$0.53 (Resistance here at SAR...take profit)

China Equity - A-Share Market Needs To See Liquidity Inflow Improve

What’s new — The domestic A-share market took a 6% tumble yesterday. From the recent high on 4th August, the market has declined more than 17% already. Yesterday’s trading volume was also about 40% below the recent peak trading days.

What's behind this — While there has been various speculation on a potential regulatory crackdown, we believe the fundamental reason behind the recent performance is that the A-share market is suffering from a significant slowdown in liquidity inflow, even periodical net outflow since the beginning of July.

Bank lending slowdown has a significant impact on stock market liquidity — According to our analysis, since the beginning of 2009, free-float growth in the domestic A-share market has a quite established relationship with monthly new bank lending. The monthly increases in free-float have been around 30% of monthly bank new lending.

The kick off of IPOs — Due to the suppressed market environment, IPOs were suspended for well over a year and only resumed in July 2009. The timing of IPOs coincided with the slowdown of liquidity inflow which further dampened market sentiment.

Sell down of previous non-tradable shares picked up significantly — We have witnessed a pick up in offloading of previous non-tradable shares that have come out of lock-up period. The volume in July was almost tripled that in January. Taking into consideration that the market almost doubled during this period, the value of the sell-down has probably grown 5-6 times.

Retirement of discounted bills — A meaningful percentage of new loans in 1H09, in particular in1Q09, were discounted bills, which are due to be retired. Typically these have 30 to 60 days maturity, and have been the mostly likely form of liquidity leaking into stock market. As we entered July, the retirement of such bills also placed a negative burden on the market liquidity.

August loan growth pick up could lead the market to a technical rebound, but a more sustained recovery needs to see a more substantial improvement in liquidity — As the market is close to the psychologically important 2,800 level, technical rebound is well expected. In particular, the government has reiterated its stand on continued support to a relatively loose monetary policy, which we believe should translate into some pick up in new lending in August vs. July. However, for the A-share market to resume sustainable upward momentum, we need to see meaningful sustained liquidity improvement from now on which should reverse the above negative factors.

STI now going to Elliott Wave 5

The chart of the STI above shows a wave count that conforms to the textbook definition of Elliott Wave. Right now, waves 1 through 4 have defined themselves clearly. Price action has unfolded in accordance to the Elliott Wave sequence.

Wave 1 was the initial run up from the 1455 base. Wave 2 was a directional countertrend move that corrected wave 1 starting from the 1950 region. Wave 3, which is typically the sharpest of the 5 waves, ran up to the 2424 level. Wave 4 was the messy sideways market we saw for about 2 and a half months from May09 to mid July09.

This puts us into wave 5, which is typically the last wave of the sequence. The run up of wave 5 has taken the STI up to the swing high of 2700 region where we saw the STI corrected from. We wrote in our weekly reports that the top at 2700 is too small to be a long term top. In other words, wave 5 is incomplete and unfolding. It thus stands to reason that the trend can still continue and there is a decent chance of another push to the upside before we should consider whether this entire rally has run out of steam. Possible targets are 2700 and 2744.

Perhaps the key point of this report is that the STI and Dollar Index are both in the terminal phases of textbook like Elliott Wave sequences. This allows us to forecast the STI from an individual stand point and also an inter-market one.

From an inter-market perspective, we know that a strong Dollar typically leads to a weak commodity market and in turn, this weighs down on equities. Should the Dollar bottom and the STI top occur around the same time, we might see the magnitude of the STI correction get magnified by the strong Dollar-weak CRB relation.

When wave 5 completes itself, trends usually undergo at least a sizeable correction. At this juncture, waves 1 to 4 have unfolded clearly in the Dollar & STI and this almost certainly puts us in the region of wave 5. (We will avoid sub-wave counts of wave 5 to avoid ‘staring at the tree and missing the forest’)

For the STI, there should be another leg to the upside as wave 5 unfolds. The STI price targets are 2700 and possibly 2744. To mark the start of the correction, what we are looking for is a broader scale topping formation such as a double top divergence spanning perhaps 2 months.

A top of this scale should be sufficient to precipitate a decent sized correction, especially if the Dollar begins to strengthen at the same time. Even more so if the STI top/ Dollar bottom occurs during September and October which are months where we typically see strong seasonal weakness in equities.

China Milk Breakout?

ChinaMilk=0.48 (Breakout Greenline....)

Straits Times Index (STI) - Reaching key supports already

Testing key supports: Despite correcting by >6% over the past 3 weeks, the index is now looking to test the 5.5-month uptrend line and the nearby key supports around the 2500 level.

Technical indicators still pointing south:While both the RSI and MACD indicators are still showing bearish signals, it is unlikely that the next 2424 support would be called into play.


At an important juncture: With the index retreating back to the 20,000 level last week, much remains to be seen whether the index will be able to sustain above this level.

Technical indicators still bearish:With the RSI falling below the 50% level and the MACD indicator still heading lower, the odds may favor the bears.

China XLX - Breakout flag formation

China XLX=$0.52 (Breakout flag formation)

Ausgroup - Strong breakout from trading range suggest further upside

Positive breakout. AusGroup is likely to see more upside in the days ahead after breaking out of its 3-week horizontal trading range and above the key support-turned-resistance level of $0.62 on heavy volume yesterday.

Upside momentum revived. With the RSI rebounding off strongly at the 50% mark and the MACD indicator signaling a strong bullishcrossover yesterday, these seem to suggest renewed strength in the upside momentum.

Immediate resistance at $0.72. Should the breakout materialize, we expect an immediate resistance at $0.72 (support-turnedresistance level) with the subsequent obstacle at around $0.86- $0.875 (gap zone in early Jun ’08).

Initial support at $0.62. Beyond the immediate support at $0.62, the subsequent supports are pegged at $0.565 (lower boundary of horizontal trading range and 5-month uptrend line), followed by $0.45 (troughs in mid May and mid Jun ‘09).

STI and trading ideas on ComfortDelgro and SBS Transit

Technically, the daily RSI seems to be turning back in the positive direction while the MACD continues to trend lower following its negative crossover in early Aug; these mixed signals suggesting that momentum in the near term could be turning for the better while medium term momentum still remains bearish.

The index is already nearing the firm supports; the first is the gap at 2485-2503 (formed over 23-24 Jul); the second is at 2425 (significant peaks in early Jun and also near the 50-day moving average and lower Bollinger Band). These are critical levels and the subsequent reaction of the index at these levels could provide more insights to the sustainability of the index's medium to long term recovery.

On the upside, the index would face immediate resistance at 2600 (psychological level) with the more important cap found at 2681 (50% retracement of the plunge from 3906 to 1455).

ComfortDelgro Corporation Ltd: Worth a Second Look ? ComfortDelgro goes ex-dividend on 25 August. Coupled with a technical buy, investors might consider taking a second look.

SBS Transit Ltd: Buy on Weakness ? SBS Transit goes ex-dividend on 25 August. Coupled with a technical buy, keen buyers might want to watch prices and buy on weakness.

12-month STI target of 2,991

Since 11 June, the market has risen a further 13% to an 11-month high of 323, driven in part by stronger than-expected 2Q results and, consequently, 6% upgrade in consensus estimates. This, in turn, was mainly due to better margins rather than top-line growth. While the market could take a breather in the near term, given the sharp bounce, this suggests that market earnings could see another leg-up as the top-line picks up – particularly during the sweet-spot before costs catch up with revenues.

With 2010E consensus earnings still down by 38% since March 2008 and at only 74% of the peak in 2007, there is probably further scope for consensus upgrades. In particular, we expect upgrades in the transport sector, where earnings are now 20% of 2007’s peak, to kick in.

Our 12-month STI target of 2,991 is based on a five-year average P/B (for 2010) and implies 16% potential upside. The corresponding MSCI Index target is 356, or +15%. Our P/B versus ROE analysis suggests that another 18% 2010E earnings upgrade over the next six to 12 months would bring the market back to the historical average P/B.

We maintain our overweight stance on transport, banks, media, financials and real estate. On the other hand, we remain underweight capital goods and telecom. Our top picks are SIA, UOB and SPH. Within the mid-caps, we like NOL, YZJ and Midas. Our least preferred stocks are COSCO, Sembcorp Marine and SMRT.

Oceanus after the force sell day

Oceanus=$0.335 (MACD turning up after force sell day)

Ho Bee - Positive breakout from flag pattern

Likely more upside ahead. Ho Bee could be poised for more upside in the days ahead after breaking out from a flag consolidation pattern and the key $1.10 support-turned-resistance level on high volume yesterday.

Positive signs from indicators. With the RSI rebounding off its 2.5-month uptrend line and the MACD indicator looking to initiate a bullish crossover soon, they support our view that the upside momentum is returning.

Initial resistance zone at $1.40-$1.48. We expect the stock to advance to the key resistance zone at $1.40-$1.48 (breakout price objective and key support-turned-resistance), breaking which, the next resistance is at around $1.72 (peak in Dec '07).

Immediate support at $1.10. Beyond the $1.10 immediate support, we pegged the subsequent supports at $0.96 (peak in Jun '09) and $0.85 (key resistance-turned-support level).

STI another 43 points to go for support

Straits Times Index=2,526 (another 43 points to cover the gap and reach yellowline support). At the moment, the 2542 low is acting as support. Beyond 2542, support is in the 2500 region, then the 2450 to 2424 region.

Immediate momentum is likely to have a bias to the downside, however, the trend still seems to be in tact at the moment and the possbility of another leg up towards 2700 is still in the cards.
Our view remains the same, namely, immediate momentum has a downside bias, but the uptrend is likely to still be in tact. We need to see how the STI reacts to the 2500 level should it clear 2542. What we are looking for is signs of an intra-day base in a region of heavy support.

Oceanus - well supported

Oceanus (well supported at the yellowline). You can visit www.ahyattianxia.cn to check out their new Restaurants in Shanghai. Ah Ya Group is working very hard and fast targeting 20 Restaurants by end of 2009 including Singapore, HongKong, Nanjing, Beijin, Shenzhen, Guangzhou, Ninbo, Hangzhou.

STI still looking for a decline towards 2,480

Straits Times Index (towards yellowline). Straits Times Index (FSSTI) should face resistance near 2,680 and pullback towards at least 2,480. We still maintain that view. The index, which was extremely overbought then, corrected 158 points from a high of 2,700 to 2,542. A minor rebound has thus far brought the index up to 2,648. We see this as a counter-trend rally and expect another leg of decline. In our previous reports, we stated that a wave 5 up move was likely and labelled the breakout from the triangle as a wave 5. There are, however, alternative interpretations which we would highlight as the index unfolds. Meanwhile, we believe the index is due for another correction, which should bring it towards 2,480 (+/-1%).

InnoTek - To fast and too sharp, take profit

InnoTek=$0.40 (To fast and too sharp..take profit)

Biosensors - Profit taking well supported

Biosensors (Profit taking well support at Greenline at $0.57...Hold)

SingPost - Strong breakout positive

Likely more upside. SingPost has staged a strong break above the previous 2009 high of $0.94 yesterday on heavy volume and this bodes well for the stock.

Initial resistance at $1.00. Should it be able to hold above this new resistance-turned-support, we expect the stock to try for the resistance at $1.00 (upper boundary of 10-month uptrend channel and key support-turned-resistance level) next; breaking which, we see the subsequent key resistance at $1.05 (minor peaks in Jul and Aug '08).

RSI in overbought territory. However, with the RSI already showing heavily overbought signals, we would not rule out a nearterm technical correction.

Immediate support at $0.94. Below the immediate support at $0.94, we expect the next support at $0.905 (resistance-turnedsupport level and 50-day MA), ahead of $0.855 (minor troughs in Jul '09 and lower boundary of 10-month uptrend channel).

STI Trend Still Intact Despite Short Term Weakness

The STI is continuing to decline from a rejection of the 2700 mark. The S&P 500, CRB and Dollar Index have simultaneously tagged their respective key support/resistance levels as well, resulting in a pullback across the board. Short term support for the STI is in the 2500 to 2515 region. There should be room for another leg upward once the STI digest this correction as the current trend is very unlikely to end due to 1 week of reversal.

The STI reacted to the 2700 mark over the past week and has since sold off sharply. The sharp sell off is likely to be due largely to inter-market relations as well. The Dollar Index tested key support at 77.68 to 77.45, the CRB, key resistance at 266 and the S&P 500, the 1007 to 1013 region as well.

The confluence of the major inter-market elements testing key support and resistance leves at the same time made the probability of a short-term reversal high. The STI’s sell off has been particularly sharp due to the sell off from a confluence of the 200 week moving average, the 2700 mark and the 50% retracement from (3907 to 1455) that we mentioned last week.

Key support is rather far away at the recent 2424 swing high, although the 2500 to 2515 region should provide interim support should the STI trade to that level. While the STI is correcting in the short-term, there are no clear signs of a top forming in the daily charts as of yet. Because of this, the overall trend is still long biased. There is still the possibility of another minor leg up to possibly test 2744 once the STI digests this correction.

Oceanus SAR resistance

Oceanus=$0.335 (SAR resistance at $0.355)

Biosensors various Technical Targets at a glance

Biosensors=$0.545 (Technical Targets at a glance)

First Resources - Potential breakout at key resistance

More upside ahead. First Resources could be poised for more upside in the weeks ahead. It has not only managed to break above the upper boundary of its 4.5-month uptrend channel but also closed above the key support-turned-resistance level of $0.935 (last seen in early Aug '08) on very high volume.

Still indicating overbought signal. However, we note that the RSI is still indicating an overbought signal, suggesting that a nearterm correction could take place soon. As such, we advocate waiting for a successful retest of this new resistance-turned-support level.

Initial resistance at $1.05. Should there be a confirmation of the breakout, we expect the stock to test $1.05 (support-turnedresistance), breaking which, the next resistance at around $1.13 (support-turned-resistance).

Immediate support at $0.935. Below the immediate support at $0.935, the subsequent support is pegged at $0.845 (minor trough in Aug '09 and centre Bollinger Band), ahead of $0.74 (resistanceturned- support and lower boundary of 4.5-month channel).
But given the current market sentiment... so not too sure.......

Straits Times Index (STI) - Heading back towards the 2500 support

STI may have already corrected 5.6% over the last four down sessions, and it may be due for a technical rebound. But the daily MACD indicator has just initiated a negative crossover (though still high within the positive region); the daily RSI has since fallen out of the overbought region and could continue to ease towards the 50% mark.

We believe that the market may still be intent on testing the near-term support at 2520 (centre of the Bollinger Band) and seeing it hold before staging a stronger rebound; otherwise, the next stronger base for a rebound will come from the support around 2484 and 2503 (gap formed during 23 and 24 Jul).

On the topside, we think that the continued failure to clear 2681 (50% retracement of the plunge from 3906 to 1455) would leave the STI vulnerable to a large pullback, given the strong gains to date. The next potential reversion point is at 2751 (significant bottoms in Jan and Mar 08).

Failed to clear the 2700 key level: Technical rebound aside, the index is still seen locked in a correction mode after failing to clear the 2700 key resistance last week.

RSI falling out of overbought level:With the RSI just fallen out from the overbought level, it seems to suggest that the downside momentum is still intact.

MACD initiating a bearish crossover.The MACD indicator has exhibited a bearish crossover, suggesting that the correction could extend further in the coming week.

Nasdaq and S&P500 hard to clear the resistance - tone turn bearish

NASDAQ - 2000 key resistance proved too tough to clear

Further correction likely: The continued failure to stay above the key 2000 resistance level could see the index heading lower still in the coming week.

Indicators showing bearish signals:With the RSI on the verge of falling out from the overbought level and the MACD initiating a bearish crossover last week, they also suggest that the downside momentum is building up.


S&P500 - Hovering at key 1000 level

Hovering at 1000 key level: The index is currently hovering at the 1000 key level and it could still break either way.

Technical indicators favor correction:But with both the RSI and MACD indicators looking to head lower, the risk is to the downside.


Dow Jones Industrial Average (DJIA) - Tone has turned bearish

A tall order to reach for the 9652 resistance:After maintaining above the 9000 key support successfully, the index may struggle to reach the next resistance at 9652.

Technical readings point bearish divergence:This as the RSI has shown a bearish divergence to the price over the last 3 weeks and the MACD indicator are showing signs of a bearish reversal, both suggesting that the tone is starting to turn bearish for the index.

All Asia indexes show more downside

Hang Seng Index (HSI) - More downside bias in the near term

Retesting the 20,000 key support:The HSI could see further correction this week to re-test the 20,000 resistance-turned-support level.

Technical indicators showing bearish signals:With the RSI heading lower and the MACD indicator on the verge of a bearish crossover, it is likely that the near term correction could extend this week.



Shanghai Stock Exchange Composite (SSEC) - Long awaited correction to continue

In a correction stance: SSEC is likely to head lower in the coming week after its failure to re-test and break above the key 3456 resistance successfully.

Bearish divergence: The RSI has been signaling a bearish divergence to the price action over the last one month, suggesting that further correction could be inevitable.

Bearish crossover by the MACD indicator:With the MACD exhibiting a bearish crossover last week, we could see the index sliding further this week.


Nikkei 225 - Heavily overbought signals suggest more downside bias

Doji candlestick suggests uncertainty:With the emergence of a Doji candlestick yesterday signifies that the market is getting uncertainty and points to potential near-term consolidation; there is also a risk that the index head south to retest the key resistance-turned-support level at 10,162.

RSI heavily overbought: With the RSI still showing heavily overbought signals, the index also looks likely to correct further in the near term.

Singtel support see at $3.1

SingTel=$3.18 (Support seen at $3.10 which was previous resistance)

STI index - Be Wary Of October

247,000 jobs were cut in the US in July, the smallest in months (June’s job loss was revised downwards to 443,000 from 467,000), and reason for yet another strong session on Friday, with benchmark indices up almost 2% (Hang Seng surged 2.7% in tandem yesterday). Dow however fell 32 points yesterday.

Another well-known “guru” has however advised caution: Mohd El-Erian, the co-CIO of Pimco, the world’s largest bond fund, reiterated that the US market is on “prolonged sugar high”.... Mark Mobius meanwhile expects global markets to drop as much as 30% “anytime, and probably this year”, after the sharp rebound.

China’s Pime Minister Wen Jiabao reiterated that the government’s mix of active fiscal policies (chief of which is the Rmb 4 trillion stimulus package) and appropriately relaxed monetary settings must stay in place because “we still face many hard-ships”, “international economic outlook remains unclear”, and pressure from falling external demand “remains heavy”. (It is perhaps good that bank lending slowed down significantly in July from June, after hitting a total of Rmb 7.37 trillion in the first 6 months, representing 25% of China’s GDP!)

Given that the 60th anniversary of the founding of communist China is 7 weeks away (Oct 1st), it does look like nothing should be “allowed” to “rock the boat”, as to trigger a big drop in the Shanghai market, as happened on July 29th when the index fell 5%. We believe this makes markets all the more vulnerable if the rally were to continue unabated in the coming weeks.

Technically, note that the STI is now 1.4x its upwards sloping 200-day moving average. In the last 20 years, this ratio has tended to peak at 1.2-1.4x, and bottomed at 0.6-0.8x. Exceptions were 1999, when the ratio hit 1.53x in May, and in October last year, the ratio went as low as 0.56x.

Oceanus - buy for potential rebound?

Oceanus=$0.335 (Buy for potential rebound to SAR at $0.365, place stop loss at $0.32)

SSE A - may have further corrections

SSE A SHARE IDX=3,480 (May correct towards the yellowline at 3,348)

STI retract to gap around 2500?

Straits Times Index=2,565 (Retracing towards the gap 2,483-2,503)

ChinaZaino - Potential bull flag formation

ChinaZaino=$0.25 (Potential bull flag formation in the making ? Resistance at $0.255)

STI drops may fall further to cover gap

Straits Times Index=2,610 (fell below Greenline at 2,630, may fall to cover gap at 2,483-2,503)

InnoTek Breakout ?

InnoTek = $0.32 (Breakout $0.305)

Hongkong Land - Breakout from key resistance suggests further upside

Key resistance taken out. Hongkong Land could see further upside after successfully taking out the US$3.90 key supportturned- resistance level. Incidentally, the last time the counter closed above this key level was nearly a year ago.

Renewed upside momentum. With the MACD indicator showing signs of turning up again, it suggests that the upside momentum could be building up again.

Near term correction likely. However, as the RSI is still indicating a heavily overbought signal, we could see the stock retesting the US$3.90 key level again. A successful retest at this support could confirm and form a base for the next leg of recovery.

Initial resistance at US$4.38. We expect the stock to test the initial resistance at US$4.38 (minor peaks in Jul ‘08), breaking which, the next resistance is at US$4.55 (gap zone in Jun ‘08).

Immediate support at US$3.90. Below the key US$3.90 support, the next support could be found at S$3.74 (resistance-turnedsupport level).

STI at 3-year overbought levels

In our previous report, we stated that we were equally biased towards an upside or downside breakout from a triangle formation, but added that a break above 2,300 would bring the index towards 2,600. This is also in line with the view, expressed in our mid-year strategy report, indicating a minimum upside of 2,680. Thus far, the index has reached a high of 2,659.

We see limited near-term upside for the index and expect a pullback over the next two days. At the very least, the index should cover a gap at 2,485. Our expectations of an imminent peak and pullback is not primarily based on the presence of a gap, but wave patterns on highly correlated indices such as Hang Seng Index, Dow Jones Industrial Average (DJIA) and FTSE. The Straits Times Index (FSSTI) chart below shows an extremely overbought price oscillator index and that too from a weekly perspective. The index is also close to a 50% retracement level of 2,680 (the basis behind our initial target).

Similarly, the DJIA is extremely overbought and is close to an important Fibonacci resistance level. Near-term wave analysis suggests that the DJIA has completed a five wave rally from the July low of 8,087. The odds of a 50% retracement of the advance from that level are high.

Technically buy IndoFood Agri, Golden-Agri, Kencana Agri

IndoFood Agri Resources (IFAR SP; S$1.52) – BUY

• The stock rallied sharply after breaking out of its bullish flag pattern in the middle of July. It has tested the May highs of S$1.49 yesterday and managed to breakout above it.

• The new-year highs however were not accompanied by new highs in its indicators. The MACD is positive but is nowhere near the highs in May. This suggests that investors should be wary of buying now. Its RSI is now overbought suggesting that a short term pullback is likely.

• Prices could adjust downwards slightly to neutralise the overbought RSI soon. Buy on weakness with support seen at S$1.36 and S$1.27. Upside resistance is seen at S$1.60 and S$1.74.

Indofood Agri Resources Limited is an integrated agribusiness company. The Company and its subsidiaries are involved in research and development, oil palm seed breeding, oil palm cultivation and milling. Indofood Agri Resources also refines, brands and markets cooking oil, margarine, shortening and other palm oil products.

Golden Agri-Resources (GGR SP; S$0.415) – BUY

• The stock’s long term uptrend is still intact. It broke out of its short term downtrend channel last week and in now rallying to test the middle band resistance of its long term uptrend channel.

• Its indicators currently suggest that the stock is could kick on higher. However, in the short term, a minor retracement is likely as there is some selling pressure near the middle resistance.

• The stock is still a buy on weakness as long as prices stay above the 50-day SMA at S$0.37-0.375. A breakout above the middle band resistance at S$0.415 could see the stock push on towards S$0.455 and even S$0.50 next.

Golden Agri-Resources Limited cultivates, harvests, processes, distributes, and sells crude palm oil and palm kernel. The Company also refines crude palm oil into cooking oil, margarine, and shortening for sale and distribution.

Kencana Agri (KAGR SP; S$0.315) – BUY

• The stock broke out of its consolidation pennant three weeks ago. It is now rallying after forming a base above its 30-day and 50-day SMA at S$0.27-0.28. The moving average now acts as strong support for the stock.

• Indicators have continued to improve and remain in buy mode. The upside resistance is seen at S$0.345, the May highs. A breakout above could see the stock test S$0.375, its high since inception.

• Aggressive investors may want to buy now but place a stop loss at S$0.265 or below. S$0.245 is the next support.

Kencana Agri Ltd. produces crude palm oil and crude palm kernel oil with oil palm plantation. The Company operates a bulking terminal and logistics services for storage and transportation purpose. Kencana Agri Ltd. also operates a renewable biomass power plant to generate electricity by utilizing waste recycled from the crude palm oil process.

KS Energy - Bullish breakout suggests more upside to come

Positive breakout at key resistance. KS Energy could be poised for more upside in the weeks ahead after breaking above the key $1.28 level (support-turned-resistance and 1.5-year downtrend line) on heavy volume yesterday.

Upside momentum intact. The MACD indicator has just risen above the centerline recently, suggesting that the tone has turned positive.

Near-term consolidation likely. However, the RSI is currently indicating overbought signals, alluding to the possibility of a nearterm correction.

Key support at $1.28. We think that the immediate support at $1.28 is key, although we do see subsequent supports at $1.08 (resistance-turned-support and 100-day MA), followed by $0.97 (trough in Jul ‘09)

Initial resistance at $1.39. But should there be a successful retest of the $1.28 level, it will confirm the breakout. This could lead to a test of the initial resistance at $1.39 (peaks in Oct ’08 and May ‘09), ahead of the next resistance at $1.51 (2009 high).

STI Approaching Cluster of Resistance Levels

The STI is approaching a cluster of heavy resistance between 2660 and 2750. There are retracement levels, the 200 week moving average and historical highs in this region. Our view is that the probability of a pullback in this region is high, however, the cluster of resistance levels makes it difficult to identify a more precise region where the pullback might begin. The market might see-saw between resistance levels before selling off.

We mentioned previously that there are several heavy resistance levels around the 2660 to 2700 region. Historical resistance is present at the 2580 and 2660 levels that we mentioned last week, a fibonacci retracement level at 2680, the 200 week moving average at about 2700 (not shown) and historical resistance at 2744.

The stagger of the different overhead resistance levels on the whole, implies that there is a very high probability that we will see a correction in this region. However, the fact that there are a few heavy resistance levels in close proximity makes it difficult to pinpoint which level will eventually exhaust buying pressure and precipitate a pullback.

We might see the STI rally to test a few of the higher resistance levels before pulling back decisively.