By Gabriel Gan
I have warned repeatedly that the Straits Times Index (STI) must not break the 3,350 support, but it did with relative ease. This worries me because the support at this level was supposed to be a strong cushion against any falls.
We draw a straight line across the charts and the 3,350-support is formed by a peak in July 2017, a trough in November 2017, another trough in February 2018 followed by yet another bottom in April this year.
On 18 June, however, the STI “gapped down” from its close of 3,356 on 15 June to finish the day at 3,324. It is also not a good sign when a key support is broken by the index gapping below the support line, so we now look for a new support level, which may or may not be sustainable, even if the STI were to rebound.
Figure 1 shows a daily chart over a one-year horizon. The technical indicators look heavily oversold yet without respite. Really? We are probably staring at a short-term rebound but my money is on retail investors not making any moves during this impending rebound because of fear. Fear is understandable as there are too many unknown factors.
All these, yet again, can be attributed to Trump’s antagonistic stance towards China in the ongoing trade war – regarded as “trading noise” by renowned investors such as Warren Buffett. It is not as easy for retail investors to remain unnerved amid the ongoing spat between the two countries.
For the fundamentalists, Warren Buffet is probably right because economic fundamentals – both on a macro and micro level – continue to support a buoyant stock market, as the market is driven by a strong economy and rising corporate profits. Both boxes are ticked, so we can regard the current correction as something that is news-driven and not cyclical or structural-driven. The bull is not dead unless there is a Black Swan event just around the corner. We just need to be patient and ride out this correction and uncertainties.
We are made of flesh and blood. We have a weak mind that is susceptible to pressure. We all lack the discipline to invest in a systematic way. How do we overcome this vulnerability?
Gabriel Gan was a Senior Vice President at AmFraser Securities. He left to join DMG Securities (now renamed as RHB Securities) to take on a similar role. During his stints at the stockbroking firms, he dealt in equities, performed advisory role and executed corporate finance deals for his clients.
Since 2001, he has been invited by the media (both Mediacorp and SPH) for his stock market opinions. On radio, he spoke on 95.8FM for more than a decade; he now speaks every Wednesday and Thursday mornings on SPH radio 96.3 FM, delivering his opinion in Mandarin. On TV, Gabriel appeared on Channel NewAsia, the former Channel U and various Channel 8 financial segments including Good Morning Singapore, Hello Singapore and MoneyWeek. On print media, he continues to give quotes and comments on the economy and stock market for Lianhe Zaobao, Lianhe Wanbao and Shinmin Daily. On top of that, Gabriel was a columnist for the now defunct My Paper.
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