This is no ordinary crisis

by KEN TAI CHEE MING,
technical analyst
KELive Research (16 Sept)

SOME observers thought the silver lining was in the sky following the 120-point rally on the Straits Times Index (STI) last Monday.

Instead, the selling pressure quickly resumed even before investors could digest the news of the Fannie and Freddie bailouts.

This shows the true extent and depth of the US financial crisis and refutes the popular notion that current developments are following the course of a normal crisis.

At the last count, Bear Stearns is gone, Fannie and Freddie are being nationalised, Merrill Lynch is being sold to BoA, Lehman Brothers is filing for bankruptcy and AIG is seeking for Fed help. The question now is: Who's next?

Amid the worsening sentiment, the STI has failed to hold the support level at 2,554, which represents the 50 per cent Fibonacci retracement level of the 2003-2007 bull rally.

Technically, this does not bode well for the STI and implies that bears are still maintaining their vice- like grip on the local market. So where is the market headed and where are the next support levels on the STI?

The first line of defence is positioned at 2,427 or the 61.8 per cent retracement of the 2003-2007 rally. Coincidentally, this is also the major triple top resistance, which had held during the 1990s.

There could be some support for the STI here and traders should look to unwind some of their short positions at this level.

Based on the Elliot Wave Theory, we believe the STI is currently on Wave-C of its downtrend.

If the decline from 3,906 to 2,745 represents Wave- A and the length of Wave-C usually equates that of Wave-A, then the STI is likely to have a minimum long-term objective of 2,106.

Our empirical study of the four major bear markets in Singapore since 1984 shows the STI declined by between 43 per cent and 64 per cent. If the STI were to fall to 2,106, this would imply a drop of 46 per cent from its peak of 3,906 in October 2007.

-Research Report by KEN TAI CHEE MING,
technical analyst
KELive Research (16 Sept)