Technical Analysis: The Phillip 20 – July Monthly Review August 20, 2018

  • New Entries: SATS, Singtel, UMS, Venture, UOB and China Sunsine
  • Stop Loss: OCBC, China Sunsine, CityDev, Haw Par, Wing Tai, Allied Tech and China Everbright
  • Total return since May 17 to June 18 is 1.07%
  • 3200 psychological round number needs to hold for the long-term uptrend in the STI to remain intact

The Straits Times Index (STI) finally rebounded modestly in July after two months of selloff. As explained in the June review where the critical support area is at the 3200 psychological round number, we were expecting it to hold up for the long-term uptrend to stay intact. With the benefit of hindsight, the 3200 psychological round number held up perfectly.

However, the bullish move was rather short-lived as the overhead resistance at the 3341 area halted the ascent. The 3341 area was first established in July 2017 as resistance, and since breaking above it in October 2017, it has been acting as a solid floor in November 2017, February 2018 and April 2018 shown by the yellow highlighted boxes. Thus, the 3341 area is widely respected by the market. The current bearish rejection off the 3341 area is once again proving that it is an important area to watch.

On the weekly timeframe, the bulls failed to break above the 3341 area over three weeks suggesting the near-term sentiment is still very weak. The bears are still resiliently defending the 3341 resistance area.

Figure 1: STI Weekly Chart – all eyes on 3200 psychological round number to reverse the current bearish sentiment

Source: Bloomberg, PSR

Red line = 20-period moving average, Blue line = 60-period moving average, Green line = 200-period moving average

Moreover, there was further bearish price action on the daily timeframe that signals a move lower next. Since June, the 20-day moving average has crossed below the 60-day moving average suggesting the immediate trend has turned bearish. Despite the recent bullish rebound in July, the correction move was capped by the 60-day moving average adding further strength to the 3341 resistance area. The subsequent bearish follow-through broke price below the pullback line and 20-day moving average suggests a continuation move lower for the bears to retest the 3200 – 3189 critical support area next.

Figure 2: STI Daily Chart – approaching the critical crossroad at 3200 points

Source: Bloomberg, PSR

Red line = 20-period moving average, Blue line = 60-period moving average, Green line = 200-period moving average

Keep in mind the 3200 – 3189 support area and 200-week moving average will determine the validity of the long-term uptrend. Watch this support area closely for a possible rebound back into the uptrend. However, if bears succeed in breaking and closing below that support area on the weekly perspective, expect the STI to head into a more sustained downtrend with 3105 support area being the next target.

Overall, the “Phillip 20 Portfolio” lagged behind the STI performance in July. The STI was up +1.56% while the “Phillip 20 Portfolio” was down –1.19%. The bulk of the losses stemmed from property-related stocks due to the excessive selloff from the new cooling measures implemented in early July.

New Entries

With the volatile market, we managed to identify six new trades in July. We have added the following six stocks into the “Phillip 20 Portfolio” in July.

Figure 3: New entries in July

Source: Bloomberg, PSR

*Note: The July new entries of UMS and China Sunsine have hit their respective stop loss in early August resulting in ‑11.49% and ‑14.69% loss to the portfolio. Average losses from these trades were -1.3%.

Losers

A total of seven counters were stopped out in July due to the overall negative sentiment caused by the cooling measures implemented in early July.

Figure 4:  Realised losses in July

Source: Bloomberg, PSR

Watchlist

After a major reshuffling of the portfolio, there are currently 14 stocks within the “Phillip 20 Portfolio.” The following is the revised watch list that we are closely monitoring:

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About the author

Profile photo of Jeremy Ng

Jeremy Ng
Research Analyst
Phillip Securities Research Pte Ltd

Jeremy specialises in Technical Analysis and has 10 years of experience in studying price action. His areas of expertise include intermarket analysis on the equities, currencies, commodities and bonds market.

He is also a regular columnist on The Business Times - every Monday ChartPoint column.

He graduated with a Bachelor of Science in Banking and Finance from University of London.

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