Post-Thanksgiving stock trading blues

The week after Thanksgiving Day in the United States has not translated to massive build up of shares this week. Neither did the fact that we are close to month’s end, and trading volumes in the local markets appear to be listless.

Source: Phillip POEMS 2.0 Trading Platform (One-year daily chart of the Straits Times Index (STI), December 01, 2017)

The Straits Times Index (STI) closed on Wednesday at 3,438.99, and is not far from the all-time high of 3,449.32. The index is at a major high following recent favourable economic news in Singapore that 3Q2017 economic growth rose to 5.2 per cent on an annualised basis. This resulted in the upgrade of the growth estimate for 2017 to between 3 to 3.5 per cent. The upgrade is an optimistic one as growth has been in the doldrums for most of last two years following the decline in crude oil prices, dampened property market, and increased uncertainties over the impact of US interest rate hikes.

Taking a look at the winning and laggard sectors

Source: SGX.com (Sector Heatmap, December 01, 2017)

With the month of November 2017 just passed, the two sectors in the ‘One Month’ column on the chart above that are still in the doldrums include the ‘Energy’ and ‘Materials’ industries. These sectors are coloured in red. Others like the ‘Consumer Staples’ and ‘Real Estate’ sectors declined on a monthly basis, but not as severe as the former.

We shall take a look at the Energy and Materials sectors.

Oil and Gas sector picking up

Phillip POEMS 2.0 Trading Platform (One-year monthly chart of the FTSE ST Oil and Gas Index, December 12, 2017)

Looking at the one-year monthly chart of the FTSE ST Oil and Gas Index, we noted that the index is starting to crawl its way up, albeit slowly. The 14-day Relative Strength Index (RSI), and the momentum index below the main chart are also starting to rise, though not at a significant pace.

Crude Oil prices are starting to come back up

Source: Stockcharts.com (One-year weekly chart of Brent Crude Oil prices, December 01, 2017)

Following the decision by the Organisation of Petroleum Exporting Countries (OPEC) and Russia to extend production cuts by another year, crude oil prices, such as the Brent Oil Futures prices have also treaded higher, with the RSI close to being ‘Overbought’.  As at the last quoted price of US$62.69 per barrel, oil prices have started to recover from their previous lows of US$23 per barrel a few years ago.

These news developments have resulted in favourable impacts to the overall fundamentals of the sector as upstream players like Exxon, Chevron, and Shell, among others have started to get back their returns on investment (ROI), increase production, and re-deploy their new capital equipment to more productive uses. The mid-to-downstream industries will also benefit from lower crude prices as they are able to save on the operational costs, and achieve greater volumes.

Basic Materials sector showed no signs of bottoming out

Source: Phillip POEMS 2.0 Trading Platform (One-year monthly chart of FTSE ST Basic Materials Index, December 01, 2017)

The Basic Materials sector appeared to be in the doldrums, with the price trend on a secular decline. We note that the 14-day RSI has ticked down, and is close to the ‘Oversold’ territory of 30.  Momentum wise, it is also in negative to flat category, suggesting that there could be a prolonged slump in the sector.

STI managed to end higher for the week

Source: Phillip POEMS 2.0 Trading Platform (One-year weekly chart of The Straits Times Index (STI), December 01, 2017)

The Straits Times Index (STI) closed Friday at a session high at 3,449.54, and is up 0.2 per cent for the week. On a year-to-date performance, the STI closed up at a high of 19.7 per cent. The overall trading volume was hefty with about 2.1 billion shares changing hands, and the total value is worth S$1.2 billion.  Using the Fibonacci Retracement analysis, the index  appears to be on track to hit the target of 3,500, though anything can happens

There were several notable high volume counters namely construction player, Tuan Sing, which closed at $0.455, down one cent. The counter was recently upgrade this week by UOB Kay Hian with a price target of $0.71 per share.

Source: Phillip POEMS 2.0 Trading Platform (One-year daily chart of Tuan Sing, December 01, 2017)

Other counters like Allied Tech have also received some interest among investors. The stock has the highest trading volume with 135.4 million shares changing hands. It closed Friday’s session at S$0.079, down 0.5 cents.

Looking ahead for the next few weeks to close 2017, we do not see any potential threats that might derail the ongoing rise of STI. This is provided there are no unexpected ‘Black Swan’ events, the US tax reforms fail to pass muster, and the US Federal Reserve might choose not to raise interest rates. There could also be something bigger like the US President Trump getting impeached. However, barring all these wild guesses, or hypothesis, the STI could next test the 3,500 by year’s end.

Hong Kong markets continue to ride up despite hiccups on Friday

Source: Stockcharts.com (One-year weekly chart of the Hang Seng Index (HSI), December 01, 2017)

Looking at the one-year weekly chart of Hong Kong’s Hang Seng Index (HSI), we observed that even with a closing of 29,074.24 on Friday, down 103.11 points, the overall trend is still heading upwards. There has been several hits and bounces of the 30,000 points resistance line since it reached the high a month ago. We think that there could be various bounces before it can safely moved past the 30,000 mark.

The first day of December saw traders selling down with Chinese investors taking some cover with the recent step-up in financial regulations. The news that the official Purchasing Managers’ Index (PMI) for November rose to 51.8 from 51.3 in the previous month, whereas for the private sector PMI, the increase is just a tad. The latest Caixin-Markit PMI came in at 50.8 and was below expectations.

The month of November saw Singles Day sales which fell in early to mid-November. The event could have some positive impact to the PMIs, especially when firms in the consumer space ramped up their production.

Overall, despite Friday’s setback of HSI, we don’t expect the Chinese government to institute tougher measures as they are trying to clamp down in the rise in debt levels, and an elevated housing market prices.

How did the Asia-Pacific region stock exchanges perform

Source: Barrons.com (December 01, 2017)

So far, based on the chart above, we noted almost, if not all the Asia-Pacific stock exchanges ended higher on a year-to-date (YTD) basis. Among the best stock market performers in the region so far has been the Hang Seng Index (HSI) which rose 32.2 per cent since the start of 2017. This is followed by India’s Sensex (up 23.3 per cent YTD), and South Korea’s Kospi (up 22.2 per cent YTD).

The laggards (those less than 10 per cent YTD) include Sri Lanka’s Colombo Stock Exchange (up 2.9 per cent YTD), followed by Malaysia’s KLSE (up 4.6 per cent YTD), and Australia’s ASX (up 5.7 per cent YTD).

Overall, the Asia-Pacific market performance is up 10.2 per cent YTD.

This is quite a robust performance considering the various Asia-Pacific tensions including North Korean missile crisis, concerns over China’s crackdown on the property market, and elections in Japan. We think that investors are still feeling quite bullish in the Asia-Pacific markets, and despite of the United States pulling out from the Trans-Pacific Partnership (TPP) Agreement, China’s Belt-and-Road Initiative (BRI) is able to push countries in the region to adopt open markets, allowing free flow of goods and services without much impediments.

European markets mired in uncertainties

Source: Stockcharts.com (One-year weekly chart of Stoxx Euro 600 index, December 01, 2017)

The pan-European Stoxx 600 index fell 0.7 per cent and ended the week at 383.97. Most of the week’s market news is centred in US with the ongoing debate over tax reforms in the Senate, and the production cuts agreement by OPEC members.

Within Europe, European Union (EU) lawmakers and United Kingdom negotiators on the ‘Brexit’ issue continued to take centrestage, with Ireland being the only EU member that could make or break the ongoing talks. The Gaelic country shares a common border with Northern Ireland (part of UK), and Irish negotiators insist that the UK government to stay in a customs union.

Looking at the one-year weekly chart, we note that the index is just above the 50-day moving average (MA) line of 380.25. While the 14-day RSI, and the moving average convergence and divergence (MACD) charts suggest low volatility, we think that a huge sell down is not expected. However, should the ongoing Brexit talks break down, we expect volatility to heighten, but not to the extent that  will cause markets to freeze up. We expect such an event to be priced in, and could benefit Europe as the common market will still be the forefront of unity.

How did major European markets perform

Source: Barrons.com (December 01, 2017)

We note from the chart above the only underperforming market in Europe on a year-to-date (YTD) basis is Russia’s RTS Index, while the top performing stock exchange in Turkey’s BIST 100 which is up 32.5 per cent on a YTD basis, followed by Austria’s ATX which is up 27.1 per cent during the same time period.

US markets are up despite troubles in the ongoing Russian political interference

Source: Stockcharts.com (One-year weekly chart of S&P 500 index, December 01, 2017)

Stocks in the US closed lower as tax reforms are still being debated in the Senate, and uncertainties loomed over the latest saga in the investigation of Russian involvement during the 2016 Presidential Elections.

The market closing numbers are as follows:

Source: CNBC.com (December 02, 2017)

According to CNBC.com, Michael Flynn, the former National Security Adviser agreed to testify that he was directed to make direct contact with the Russians during the presidential campaign in 2016. Flynn pleaded guilty to lying to the Federal Bureau of Investigation (FBI) about his post-election contacts with the Russians.

Apart from the Flynn news stories, the tax reforms bill was under debate in the Senate before US markets closed. Subsequently, as the night wears on, it was reported in major news outlets that the tax reform bill which would have cut corporate taxes to as low as 20 per cent was finally passed.  This could be a major driver for global markets come Monday.

Looking at the S&P 500 weekly chart, we don’t seem to see much correction anytime soon given the various ups and downs we have seen in the past year. The index is still in the ‘Overbought’ territory, with the 14-day RSI still trading at above 80, while the MACD chart is also showing strong signs of momentum.

We think that with the successful passing of the US tax reforms, all eyes are now on the upcoming US Federal Reserve Open Market Committee (FOMC) meetings which many expect that interest rates will be hiked by another 25 basis points (bps). It is expected that 2017 will end strong

How did our model portfolio perform

Note: Model equity portfolio performance as of December 01, 2017. For illustration purposes only, and information is not verified by third party. Past performance is not necessarily indicative of future performance. Please seek the advice of your qualified licensed financial adviser before any investments are undertaken.

Since the inception of the model equity portfolio at the end of November 2016, the latest portfolio return this week has shown a major outperformance of 86.7 per cent, inclusive of capital returns, dividends earned, and realised returns earned during the last rebalancing round on July 01, 2017. This compares to the total return of 15.3 per cent for the Straits Times Index (STI) during the same time period.

The top three holdings in total return terms (dividends plus capital gains) include Cogent Holdings  (up 45.7 per cent since end January 2017); followed by Nordic (up 44.7 per cent since June 2017), and Mapletree Logistics Trust (up 24.1 per cent since November 2016).

The model equity portfolio did experience a shortfall coming from Straits Trading Company (down 6.9 per cent since June 2017); followed by Sheng Siong (down 5.6 per cent since end June 2017), and Sembcorp Industries (down 3.2 per cent since January 2017).

For now, we are not planning to make any changes or do any rebalancing for the portfolio. We shall actively monitor the model portfolio till end of December 2017.

Economic Reports to look out for in the coming week

 Singapore

Source: TradingEconomics.com

There are some key economic reports to watch for next week, including the various purchasing managers’ index (PMI), followed by a gauge of the foreign exchange reserves. The PMI data is perhaps an important data point to look out for to estimate the growth of the continuing growth of the manufacturing industry.

The electronics sector has been a major driver for Singapore’s economic growth, and investors would keenly be looking out for.

China

Source: TradingEconomics.com

With the higher recorded PMIs, all eyes on China’s economic data next week will be a focus on trade, and inflation rate. We expect the China’s data to look favourable, though not roaring growth as government intervention is still ongoing to curb speculations in the speculative assets like real estate, Bitcoins, and wealth management products (WMP).

United States

Some key US economic data to look out for include the trade balance, non-manufacturing PMIs, and to round off the week, the unemployment figures for the month of November. Most market observers are pointing an expected increase in non-farm payrolls to hit 261,000, while unemployment rate is expected to come in slightly lower at 4.1.

The University of Michigan (UMich) consumer sentiment report will also be released where many would expect some of the Christmas hype to flow through to computers, mobile devices, and other peripherals.

In summary, there has not been a lot of market events to speak off that could pose a risk to the overall sustainability of the global markets. In the meantime, sit back, and enjoy the holidays over the next few weeks. Till then, the gravy train continues.

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About Peak Hour 62 Articles
Hock Meng has 12 years of financial industry experience, including three years working as a research associate for a hedge fund company in Wall Street, US, with assets under management (AUM) close to US$400 million during its peak in 2008. Hock Meng is a Chartered Alternative Investment Analyst (CAIA) holder and passed his Level I Chartered Financial Analyst examinations. Hock Meng is licensed to provide investment advisory services in the area of unit trusts, dividend portfolio construction, securities wrap services, and life insurance planning