Technical Analysis: The Phillip 20 – May Monthly Review June 11, 2018

  • New Entries: China Everbright, ComfortDelGro, Memtech Intl, Jardine C&C, Wing Tai and Geo Energy Res
  • Stop loss: Golden Energy, Riverstone, Miyoshi, Sembcorp Ind, Jumbo and UOL
  • Total return since May 17 to May 18 is +0.48%
  • STI currently in a correction phase with the 3350 – 3341 support area being the next target

It was no surprise that the Straits Times Index (STI) entered into a correction mode in May after a stellar performance in April where the STI was up 5.4%. Unfortunately, the STI gave up all the April’s gain and suffered -5.14% drawdown in May. In the April monthly review, we stated a possibility of a deeper correction playing out due to the strong bearish price action at the 3611 resistance area. Moreover, in the week ended 4 May was when the RSI bearish divergence was confirmed.

Thus with the benefit of hindsight, the bearish view occurred as expected leading to the STI once again being stuck in a bigger range between the 3611 range high and 3341 range low. Nonetheless, the long-term uptrend that began since 2016 remains intact until the 3341 range low breaks down. Notice the uptrend structure of Higher Highs (HH) and Higher Lows (HL) remains valid even with the recent -5.14% selloff in May. More importantly, the 3341 Higher Low (HL) will be the reference point for keeping the structure of the Higher Highs (HH) and Higher Lows (HL) intact. Keep a close look out on that area if this correction deepens.

Figure 1: STI Weekly Chart – RSI bearish divergence signalling further downside

Looking at the daily timeframe also shows the bears are still dominating as the recent rebound off the 200-day moving average since 1 June failed to sustain. As soon as the STI approached the 20-day moving average, it was knocked back down and looking at the current bearish price action suggests a high likelihood of price breaking below the 200-day moving average.

The 200-day moving average will be the most important level to watch in the near-term as it succeeded in halting the past two periods of sharp selloff in February and April shown by the highlighted areas. If the STI were to break and close below the 200-day moving average, expect the next wave of selling to begin with the bears targeting the crucial 3341 Higher Low (HL) support area.

Figure 2: STI Daily Chart – Bearish price action suggests a high likelihood of the 200-day moving average breaking down

With the disappointing performance from the STI, some of the stocks within the Phillip 20 Portfolio also triggered their stop losses. All in, the Phillip 20 Portfolio was down -1.95% as compared the STI of -5.14%.

Losers

In total, six trades were stopped out in May leading to an equal-weighted loss of -3.17% to the “Phillip 20 Portfolio” shown in the following table.

Figure 3: realised losses in May

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About the author

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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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