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AS investors continue to grapple between conflicting data points, the Straits Times Index remains trapped between the 2,520 and 2,700 trading range despite closing 98 points higher last week. The divergence of views presents a stark contrast for market sentiment.
In the US, the benchmark Dow Jones Industrial Average is trading near its 10-month high on renewed buying interest and better housing numbers, while the Shanghai Composite Index, which regional markets track closely, continues to trend lower.
The latter recently broke key support at 2,761 and fell to a new three-month low on concerns over a flood of new equity issuance, monetary policy tightening and reports that the Chinese government gives state-owned enterprises carte blanche to default on derivative commodity contracts entered with six foreign financial institutions.
With no clear direction from the key markets, the STI is likely to stay volatile as we head into the first week of September, which is traditionally slow. Having failed to surpass the 2,700 resistance level in the recent rebound, the STI has formed a bearish engulfing pattern as of yesterday, which points towards a short-term consolidation.
Meanwhile, the MACD is about to trigger a sell signal with a crossover below its nine-day EMA. The downward sloping ADX also reinforces the same downside risk scenario on the STI.
For this week, traders are likely to zero in on a slew of US economic numbers - vehicle sales, ISM manufacturing index, construction spending today and payroll data on Friday.
Pending positive surprises on the outcome of these reports and a less hawkish tone from the Chinese central government, the Singapore equity market is likely to flounder.
By KEN TAI
Senior Technical Strategist
KELIVE
RESEARCH
(Part of the Kim Eng Group)
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