QE Has Come, What’s Next For The Equity Markets?
By Ernest Lim
With the exception of the Shanghai index, most stock indices have generally moved higher after the announcement of QE3 on 14 September. With reference to Table 1, the STI surged 2.2 percent since 7 September. It closed spot on at my resistance 5 (i.e. 3,078) for the week. In the near term, the STI’s key resistance lies on the four times tested region of around 3,085-3,088. If it can breach this resistance, the next significant resistance is around 3,120-3,125.
Table 1: Indices’ performance over the past two weeks
Source: Ernest’s compilations
Looking ahead to this coming week (24-28 September), although there are important data such as German IFO Business Climate on Monday and US home data on Wednesday, the more noteworthy data are likely to be on Tuesday, Thursday and Friday. On Tuesday, investors will get to hear ECB President Draghi’s speech (may divulge some clues to the upcoming ECB meeting on 4 October). US consumer confidence, manufacturing and housing data are also slated for release on Tuesday. On Thursday, according to Financial Times, Spain would unveil structural reforms. These reforms may be necessary before Spain can qualify for a bailout. US core durable goods report would also be on tap on Thursday. On Friday, investors would look to China’s HSBC Final Manufacturing PMI and US Personal Spending & Income and PMI data. (Please refer to “Summary of Economic Calendar for the Week ahead (SIN time)” below for some of the important economic events to take note.)
With reference to my newsflash 2 weeks ago, I had mentioned that the China market (it was around 2,047.52 on 31 August at the time of mention) is getting interesting but not oversold enough to justify a favourable risk to reward entry. It dropped about 4.8 percent from 2,127.76 on 7 September to 2,026.69 on 21 September. Despite the drop, based on technicals, it is still not oversold enough to justify a favourable risk to reward entry. Furthermore, I have not found suitable instruments that correlate well with the movement in the Shanghai index.
Offshore oil and gas companies, especially the second liners have been on a tear lately. With reference to Table 3, stocks such as Ezion has appreciated by almost 80 percent since 4 June! Based on charts and in view of the momentum in the oil and gas stocks, one of the laggards (Swiber) is likely to consolidate around $0.645-0.655 and move higher after consolidation. It is noteworthy that Swiber has about 63.2 percent stake in Kreuz that has rallied 40 percent since 4 June. This is based solely on technical analysis. For readers who wish to know more about Swiber’s fundamentals, drop me an email at crclk@yahoo.com.sg and I will forward the analyst reports to you.
Table 3: Oil and gas stocks’ price performance
Having said the above, there are more important events for the week of 1 October. Examples of which are ECB meeting; US jobs report and etc. For the week of 8 October, companies would commence their 3Q results reporting. In fact, Alcoa would kick start the 3Q earnings result on 9 October (Tuesday).
Although the DOW and S&P500 are near the highs since December 2007, it is noteworthy that earnings estimate for S&P500 companies polled by Thomson Reuters may post a 2.2 percent drop from a year ago, the first drop in 3 years. In addition, companies’ guidance for the upcoming 3Q is the most negative since third quarter of 2001. Furthermore, the upcoming “fiscal cliff” and Presidential Election may also present some hurdles for the market to continue their upward movement without some sort of retracement.
All the best for your investment and trading!