Technical Analysis: The Phillip 20 – June Monthly Review July 16, 2018

  • New Entries: China Sunsine, Japfa, DBS, Haw Par, Singtel, CityDev and Wing Tai
  • Stop Loss: Memtech Intl, DBS, Wing Tai, Chip Eng Seng, Singtel, Frencken and Jardine C&C
  • Take Profit: Japfa
  • Total return since May 17 to June 18 is +2.28%
  • Bullish rejection off the 3200 psychological support with oversold RSI mean reversion suggests a rebound next for the STI

June was yet another sluggish month that was overshadowed by the rising trade tensions between the US and China and the recent US dollar strength. STI extended the loss for the second month as it fell -4.65%. Globally, the overall sentiment was also greatly affected by the resurgence of the trade tensions, especially China where the Shanghai Composite Index tumbled -8.00% in June.

The trade tension heated up again in June after the US administration announced that a 25% tariff would be imposed on $50 billion China imports that involve significant technologies. China also responded immediately with a similar 25% tariff on $50 billion US goods.

At the height of the dispute, US raised the stakes by stating a possibility of restricting foreign investment into the US, mainly targeted at China.

After this latest round of tariffs announced in June, the US has doubled down again and revealed a list of $200 billion of Chinese goods subject to an additional 10% tariff. The market reacted negatively initially when the news surfaced on 11 July. However, the recovery came quickly suggesting the market was once again overacting to the negative trade war news. Keep in mind this new proposal for an additional tariff on $200 billion Chinese imports will not be final until after two months of public comment period. In other words, the decision on the amount of tariffs and list of items will only be finalised after August 30. Thus, in the meantime, looking at the current recovery price action suggests the market is expecting further positive negotiation between the US and China to find a win-win outcome.

From the Year to Date (YTD) high of 3641 points (2 May) to the YTD low of 3176 points (6 June), the STI has fallen as much as -12%. Despite the immediate trend turning bearish, we expect a near-term rebound to take place. As mentioned in the “Chart of the Week” on 2 July, there is a chance for the STI to test the 3200 psychological support area if the hammer rejection fails to sustain. Indeed, with the lack of bullish follow through after the last update, the bearish momentum gathered speed and broke below the 3200 psychological round number violently on 6 July as it hit a yearly low of 3176 points. 

That sharp selloff of -2% on 6 July was caused by the new cooling measures in the property market. The Singapore government announced that it is increasing additional buyer’s stamp duty (ABSD) and tightening the loan-to-valuation (LTV) limits for residential property purchases to cool the local property market and keep prices in-line with economic fundamentals. Nonetheless, the selloff appeared to be exaggerated as the STI recovered ground the following day and closed back above the important 3200 psychological support area. The subsequent bullish follow-through has also signalled further sign of strength and suggests the bearish break below the 3200 psychological support to be a false bearish break.

Figure 1: STI Daily Chart – 3200 psychological support holding up

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 Relative Strength Index (RSI) has been oversold since 14 June as it hit an extreme low of 23 on 25 June. With the recent strong bullish rejection off the 3200 psychological support area, the RSI has also risen back above the 30 oversold region signals the start of a mean reversion higher next. For this rebound, expect the STI to test the 3341 resistance area next followed by 3462. There was also a bullish break above the immediate downtrend line signals further sign of strength.

The 3200 psychological round number to 3190 support area will be critical in keeping the long-term uptrend in the STI intact.

Overall, the performance of the “Phillip 20 Portfolio” did well in June and managed to weather through the storm. The “Phillip 20 Portfolio” was up +1.80% as compared to the STI of -4.65%. The positive performance was mainly propped up by BreadTalk and Sinostar Pec.

New Entries
The huge swing in the general market sentiment has also allowed us to identify a few buying opportunities. We have added the following seven stocks into the “Phillip 20 Portfolio” in June.

Figure 2: new entries in June

Source: Bloomberg, PSR

Losers
In total, seven trades were stopped out in June due to the overall negative sentiment. As a result, the “Phillip 20 Portfolio” booked a realized loss of –3.41%. Figure 3 shows the trades that were stopped out.

Winner
We have also decided to close out our position in Japfa on 27 June due to the bearish price action. The trade in Japfa netted a return of +0.34% to the “Phillip 20 Portfolio.”

Source: Bloomberg, PSR

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About the author

Profile photo of Jeremy Ng

Jeremy Ng
Investment 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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