BASED on Elliot Wave theorem, the Straits Times Index is currently trending in Wave-B downtrend of its Wave-4 cycle. At the macro front, the decline in commodity and oil prices is making a positive impact on the US external deficit and US dollar strength.
Coupled with the rising aversion to global risk, there is anecdotal evidence to suggest that US capital outflow to Asia is slowing down somewhat as funds re-balance their weightings in favour of US dollar assets.
If this prognosis is accurate, then Asian markets will likely consolidate further as the US dollar strengthens. For Singapore, MAS's shift towards a zero appreciation policy for the Sing dollar on Oct 9 had led to speculative shorts on the Sing dollar.
To date, the Sing dollar/US dollar exchange rate has depreciated from $1.47 to $1.53; the next resistance to watch is $1.543, followed by $1.592. We believe currency exchange levels will have a deterministic role in this phase of the STI's consolidation with index support at 1,570.
While it could be a wait before the Wave-C rebound arrives, potentially, a breakout of the recent 1,933 high achieved this October is plausible.
-Research Report by Ken Tai Chee Ming, CMT senior technical strategist, KELIVE RESEARCH (25 Nov)
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