Technical

ST Index- Look out for resistance/pullback near 3,880-3,900

Our earlier take

In August, we suggested that the ST Index?s decline towards 2,960 was either the completion of wave 4 or part thereof. Subsequently, on 24 September, we stated that wave 5 had commenced for both the ST Index and the DJIA from their respective lows in August.:

What now?

The ST Index?s move suggests that it is somewhere within wave 3 of a fivewave structure from 2,960. As we had stated previously, the underlying fundamentals are often substantially weaker than the corresponding wave 3 (from 1,205-3,668) and the market becomes increasingly speculative. We have already seen examples of this, most notably the euphoric reaction on Singapore listed Chinese stocks to the setting up of the US$4b Qualified Domestic Institutional Investor (QDII) fund in China that caters to investments outside Hong Kong. No less a notary, Minister Mentor Lee Kuan Yew was quoted by the

At our end, we had recommended several stocks over the past two weeks, based on risk/ reward profile. Most of these, especially the China plays, have rallied sharply. At current levels, we see very few favourable trades other than banking stocks and selected small caps. For this week, we think that the ST Index will very likely face resistance near 3,880-3,900 and potentially weaken back to 3,740-3,750.

We will re-look stocks with attractive risk and reward profile, especially if the ST Index declines below 3,800. Support is near 3,740-3,760. Our recommendation is not to chase the rally on Monday but to wait for dips. Trading 5

As for HSI, we had stated that the index?s decline towards 26,830 was likely part of a fourth wave correction. Look out for a potential weakness back towards 26,830 if resistance at 28,500-28,700 is not breached in the early part of the week.Business Times last Friday stating that the present rally was not based on fundamentals.th waves are often tricky and readers should be prepared for sudden and swift reversals.

SINGAPORE

Technical

K Ajith

��

ajith@uobkayhian.com(65) 6419 5411