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N.B. Above Chart is abstracted from
NextView Program
Last week we said that, "Well market has certainly reached a
very over bought situation right now. Despite many analysts calling for a
correction over the past one month, the market continued to charge forward.
This has made investors wonder if the correction will ever come. Last Friday
unemployment data could be the first indication of the market weakness.
Despite a much better than expectation data, the market failed to rally. In
the past weeks, the not so bad news will push up the market, but last
Friday's good news had no impact to the market at all. This could mean the
market has run out of buyers, or rather the market has started to request
for more good news before making any move. In any case, I can see the first
sign of cracking now. Couple with the reversal in US$, the bond and
potentially oil & commodity, the environment is indeed ripped for some form
of correction now. Technically DJIA is now hovering around its 200 days
moving average, some global indexes are now hanging at their respective
0.382 retracement level too, all these are indication that a reversal may
soon happen, OR may have already started last Friday!" Well we were on the
dot again! Although market did not have a big plunge, they had started
drifting lower. This could be the first step leading to a bigger degree
correction. We also said that, "As for STI, it may continue to rally on
Monday towards the important resistance at 2424, however if it fails to
penetrate through again, then it will become a triple tops and will likely
to turn down from there. A break below 2350 will confirm the change of trend
and bring in more downside in the coming weeks. Hence, we have to be more
patient waiting for the market to give us the next signal." Again, we were
right, STI did manage to rally last Monday but failed to cross above 2400
and was subsequently drifting lower. Indeed we were very near to 2350 again!
So what could we expect next week. Will the correction start or we are still
stuck in a trading range?
Well on one hand we have end June
financial reports coming up for many corporation and fund managers. This
will be positive to the market for many fund managers would like to do some
window dressing for their portfolio holding. However, markets are really
very over bought and that an immediate correction could be any time. We
believe these two forces will continue to play in the market until July. For
the coming week, we do not have many important data. We only have on Monday
Housing Index for Home Builders, Tuesday's PPI and housing starts,
Wednesday's CPI and Thursday's weekly jobless claims. These may have impact
to the market but are not as important as data such as non-farm payroll. As
such, we believe market may be going for some form of correction but may
rebound by end of the week. For DJIA, we believe it will have support at
8600 and could be bouncing up from there by end of the week. As for STI,
it may continue to drift lower and test the support at 2350. A break at this
level, will lead to the index testing another support around 2270. Only a
break below 2270 will lead to a bigger degree correction. Hence, while we
are bearish for mid term, we have to be
more patient waiting for the market to give us the next signal. As such, we remain cautious short term
and would try shorting if STI breaks below 2350 again. As for mid term
customers, I would assume you have squared all your positions by now. You
may also try to establish your short positions when STI breaks below 2350.
The following are the support and
resistance to watch for Dow Jones, Hang Seng and Nikkei next week.
Dow Jones Hang Seng
Nikkei
Resistance 8877
19200 10168
Support 8600
17710 9958
As for STI the resistances and supports
are as follow:
Resistance: 2424, 2465, 2500
Support:
2371, 2350, 2314, 2270, 2150, 1960
Events To watch For The
Coming Week:
- The movement in Dow Jones
Industry and NASDAQ..
- The
movement in currencies, bond, oil and commodities price.
-
The development on the meeting between the BRIC nations.
-
The economic data include Monday Housing Index for Home Builders,
Tuesday's PPI and housing starts, Wednesday's CPI and Thursday's weekly
jobless claims.
The following are two
possible wave counts on STI as at to-date:
- Preferred Count (60% probability)-- bullish count
My preferred count calling for a
top at 2502 (on 7/1/2000) as wave ((1)), it then follow by a two year
sell off on wave ((2)) to 1197 (on 28/9/2001). The index had then entered
into an impulsive wave ((3)) that ended at 3906. We are now in the
development of wave ((4)), of which we expect it to be a big triangle
formation that take about one to two years to complete. The recent sell
down is the first leg of wave ((4)), which will take a form of a-b-c and
reaches the potential target of 2770, as the wave (a) of ((4)). The
index will then continue to develop the (a)-(b)-(c)-(d)-(e) triangle
formation.
- Alternate Count (40% probability)--
bearish count
My alternate count calling
for a top at 2502 (on 7/1/2000) as wave ((1)), it then follow by a two
year sell off on wave ((2)) to 1197 (on 28/9/2001). The index had then entered
into an impulsive wave ((3)) that ended at 2666 in May 2006. The index had
then entered into wave ((5)) that ended on 3906 in October'07. We are
now in the downtrend bear market, which will last for a few years!
Although this count remains as the least chance as compare to my
preferred count. If the index breaks below 2776 convincingly on very
high volume, the odd on bear market will significantly increase.
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