Mar 04, 2014

    Some trading ideas for a lethargic market

    WALL Street's S&P 500 gained 4.3 per cent last month (its best performance for a February in 16 years), and closed at an all-time high.

    For sure, investors in US stocks owe a debt of gratitude to new Federal Reserve chairman Janet Yellen, who has stepped seamlessly into the shoes of the former chairman, Dr Ben Bernanke.

    Cynics who believe that the money printing of the past five years hasn't really achieved a lasting positive impact on economies everywhere would be reminded of the line from the 1971 anti-establishment anthem "Won't Get Fooled Again" by British rock band The Who (currently the theme for TV show CSI Miami), which goes "meet the new boss, same as the old boss" - a call for revolution to change the incumbent order.

    Or perhaps the less violent French saying plus ça change, plus ce la même chose (the more things change, the more they stay the same).

    Still, monetary policy aspersions aside, with Dr Yellen at the helm, the S&P 500 on Thursday and Friday hit all-time highs (to go with the 50-odd it reached last year alone under Dr Bernanke) as she essentially gave the go-ahead to Wall Street to take on more risk when she said tapering would be data dependent - nothing new, of course, but then again the market likes familiarity and, in Dr Yellen, markets are happy that she's following so closely in Dr Bernanke's footsteps.

    After a January wobble that saw the major US indexes drop 7 per cent, it's back to business as usual for Wall Street as prices continue to climb to fresh all-time highs.

    This, of course, is good news for US stocks but not necessarily so for countries not classified as a "developed market" (DM), or for a DM that sits within a zone where most other constituents are classified as "emerging markets" (EMs).

    Since Singapore falls in the latter category, it means that the stupor which has been inflicted on the local market by Fed tapering of its quantitative easing stimulus doesn't look like lifting anytime soon.

    There are some silver linings, though. Blue chips here have proved reasonably resilient, bouncing back quickly in recent weeks after January's sell-off.

    A loose consensus seems to have evolved that there is support for the Straits Times Index around the 2,900 level - so, provided traders stick to quality blue chips from the index when the latter falls to near this level, "buy the dip" appears a safe bet.

    Where to start selling is anybody's guess - chart technicians would probably pick 3,200 as a resistance, so this level is as good as any other.

    The corollary to this is, of course, which index stocks to trade? Lately it looks like the banks have replaced SingTel as the preferred trading vehicles, with activity also picking up in Genting Singapore and Golden Agri Resources. The Jardine stable is another favourite for window-dressers and other index-shifting activities, thanks to its relatively thin trading, particularly Cycle & Carriage.

    Finally, within the index, Olam International's rise over the past fortnight surely cannot have passed unnoticed by those who track the local market.

    Another trading tip is to bear in mind that the STI tends to rise or fall before a rise or fall on Wall Street and not typically after, and that this "ahead of Wall Street" relationship which we have highlighted in this column several times is one which seems to have grown stronger over the years.

    So if the STI was to move sharply in one direction - often after Hong Kong has closed at 4pm local time - it might be an idea to buy or sell the exchange-traded funds on the major US indexes (known as "diamonds" or "spiders" in market jargon), depending on the direction of the STI. This has very much been the case this past week and so it was again on Friday.

    As for the penny sector, many stocks are in play too, thanks to house trading activity, possible syndicate manipulation and pure speculation. It's very probable that only a few of the deals that are either rumoured or already announced will yield concrete returns, so playing in this sector is as high a risk as it gets.

    Then again, in a market wallowing in poor liquidity and no interest due to a somewhat unfair classification as an EM, some degree of speculative punting cannot be avoided and is arguably essential.