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updated 20th July'09  

N.B. Above Chart is abstracted from NextView Program

Last week we said that, "Well the markets appear to be on a "stair step" falling down since one month ago. The characteristic of the downward movement behave more like going down a staircase, ie. we have a big drop, follow by a quick spike up then a sideway trading for a few days before the next drop appears. We expect such movement to continue over the next few weeks. As a whole the market should continue to trend downward but unless you can time the entry very well, you may get stop out on either side of the trade, so a careful entry level couple with smaller size will be the key for successful trading during this period of time. While we do not completely rule out a possible of another rebound from here before DJIA breaks its psychological 8000 level, there is a good chance market may be poised for a big drop next week. A drop below 8,000 for DJIA may cause a big sell off next week. However, if the rebound does continue, DJIA will probably cap at 8350 before the next sell off emerge. As such, if DJIA breaks below 8,000 next week, we can assume market has started another wave down. On the other hand, if it continues to hold above 8,100 early next week, there still have a possibility of stronger rebound before the next big sell off. For next week economic data, we have on Tuesday the Retail Sales and Wednesday CPI. These are the data that are likely to move the market. We also have some important corporate results to be announced next week. Namely JP Morgan (Wednesday), Intel (Thursday) and other banks like Goldman Sachs, Gank of America and Citigroup, which again are the usual market mover in the past. We also have more and more corporate results coming in over the next few weeks, which will make the market even more volatile." Well last week was certainly very drastic. While Monday did provide a good platform for a big drop in DJIA, a sudden twist on Tuesday by a buying call on Goldman Sachs by Ms Whitney, followed by subsequent better than expected results from big banks and Goggles etc had turned around the market and propelled the indexes much higher. We also said that, "As for STI, the gap created at 2314 had finally covered last week, and it did close lower after closing the gap. This has suggested that STI may continue to drop in the early part of next week. However, STI needs to drop below 2295 before any big sellers emerge. As such, this could be the critical chart point to watch." Again, STI did look as if a break down may occur last Monday, but was forced to turn around after the twist occurred in USA market. So what could we expect next after last week stunning rally! Has the correction over and that we are heading to new high?

Well after a continued strong rally over the past four days in USA market, the technical picture has changed. It is now more favoring the upside for the coming months. The only question is whether the market will continue rocketing up or having some pull back before the next rally emerged. From the wave structure, S&P looks like about to complete its 5 waves up, if so this will lead to some form of correction before the next rally kicks in. I would expect there should be some form of correction in the early part of the week, of which DJIA and STI may pull back to their strong support at 8408 and 2350 respectively. Once this correction is completed, we will see a strong impulsive rally kicking in. Only a break below 8250 and 2200 on DJIA and STI will change our bullish count. For next week, we have very heavy corporate results announcement. Starting from Texas Instrument and Zions Bancorp on Monday, followed by Du Pont, Caterpillar, Western Union on Tuesday as well as results from Apple, AMD and Microsoft. These are more down to earth real economy companies, so the result may not be as rosy as the big financial firms, which will give excuse for traders to take profit and push the market lower. On economic front, the data are relatively light next week We have on Monday the Leading Indicators, Thursday Jobless claims and Existing Homes, Friday Consumer Sentiment. Plus testimony by Fed Chairman Bernanke on Tuesday. The Fed Chairman statement may be more influential to the market than the economic data. As for STI, although a continue rally is possible, there could be some form of correction in early to middle of the week. However any correction will be strongly supported at 2350 and may lead to another stronger rally by end of the week or next week. We  had covered our short on last Tuesday morning when the market started to bounce up strongly on high volume. For Intermediate investors, we would like to suggest you to consider buying into the market when there is a correction by early next week. As for short term traders, perhaps it is time to look into the momentum trades again.

                       Dow Jones   Hang Seng     Nikkei
Resistance       8840            19870            9500
Support             8580            17200            9250

As for STI the resistances and supports are as follow:
Resistance:      2465, 2500, 2580, 2700
Support:            2424, 2371, 2350, 2320, 2270, 2200

Events To watch For The Coming Week:

  1. The movement in Dow Jones Industry and NASDAQ..
  2. The movement in currencies, bond, oil and commodities price.
  3. The corporate result announcement from Texas Instrument and Zions Bancorp on Monday, followed by Du Pont, Caterpillar, Western Union on Tuesday as well as results from Apple, AMD and Microsoft.
  4. The economic data include Monday the Leading Indicators, Thursday Jobless claims and Existing Homes, Friday Consumer Sentiment. Plus testimony by Fed Chairman Bernanke on Tuesday.

The following are two possible wave counts on STI as at to-date:

  1. 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.
     
  2. 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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