As noted in our previous report, we think the STI is within a 5th wave of a 19-month impulsive rally. Yet key resistance levels loom nearby, along with the potential for some volatility from its 3-largest constituents. As the STI’s top 3 stocks by market cap account for around 36% of the STI’s weighting, their earnings report will be a key focus this week.
Tomorrow, both OCBC (Oversea-Chinese Banking Corp) and UOB (United Overseas Bank) report earnings, then DBS are on Friday (all before market open).
- OCBC are expected to report an EPS of 0.26 and revenue of $2.59 billion. Six analysts have a ‘strong buy’ recommendation, ten have a ‘buy’ and 4 have a ‘hold’ according to Reuters.
- UOB is expected to report an EPS of 0.59 and revenue of $2.46 billion. Four analysts have a ‘strong buy’ recommendation, 14 have a ‘buy recommendation’ and one has a ‘hold’.
- DBS are expected to report an EPS of 0.6 and revenue of $3.55 billion. 5 analysts have a ‘strong buy’ recommendation’, 10 have a ‘buy’ whilst 4 have a ‘hold’.
As the top 10 stocks on the STI account for around 70% of the index weighting, it’s good to see 9 of the 10 stocks have traded higher over the past 3-months to support STI’s rally. Jardine Matheson (JARD) and Capital Mall (CAPN) have been top performers with DBS Group (DBS) a close third. Only OCBC traded lower, so the market appears broadly supported overall.
However, which ever way we look at the broader market, its near-term direction will likely be dictated by the ‘big three’ this week, especially if they all exceed or miss expectations by a wide enough margin. And that could be the difference between breaking above key resistance or falling from it.
Earnings to drive STI’s next move from (or through) resistance
As for the STI, its rally has stalled just below historical resistance levels, which rarely break upon a first attempt. 3233.86 marks the February 2020 high which was the ‘last hurrah’ before the pandemic’s bear rally took hold, and that key level sits just beneath the April 2021 high. It is therefore safe to assume these levels hold strong memories, so we would not be too surprised to see a correction from current levels.
However, before getting too bearish we’d want to see a 3180 to confirm a countertrend move on the daily chart. A break of 3180 then makes 3140 (50-day eMA), 3122 (bullish Marabuzo low) and 3088 (swig low) making viable bearish targets.
If 3180 holds as support, it may tempt ‘dip buyers’ to the table who anticipate a break higher. And taking the long-term bullish trend and strong rally into resistance into account, we do favour an eventual break higher. And volume analysis seems to agree.
Volume analysis suggests an eventual break higher
OBV (on balance volume) has confirmed the bullish rally and even broken to new highs ahead of price action, which suggests bulls are accumulating. A strong CNY would also help but, at present, USD/CNY is holding above the key support level of 6.35. So in a nutshell, we favour an eventual upside break but need to see how the near-term direction plays out as to decipher if it will be a small or large retracement ahead of any breakout.
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