STI set for retreat

The tone on 24 August 2012  is likely to turn rather pessimistic, says OCBC Investment Research.

OCBC Investment Research said:

The significant pull-back on Wall Street overnight and the poor Nikkei start (down 1.2% now) are likely to spook the local bourse to a similar retreat this morning.

Following a successful rebound at the 3040 base on Wednesday, the STI managed to hold above this level again yesterday with a 0.2% higher close.

But with today's tone likely to turn rather pessimistic, we could see the index testing this 3040 resistance-turned-support again. A break below could send the index towards the next support level at the 2980 troughs.

On the upside, the immediate resistance is still pegged at the 3090 obstacle (recent peaks), as the next resistance is marked at the 3140-3172 gap resistance.

IG Markets Singapore meanwhile noted:

It was a case of easy come, easy go for QE3 last night. No sooner had traders started drooling over the prospects of more Fed easing than they were wiping their chins in disappointment.

As we noted last night, the structure of the Fed minutes, being released three weeks after the meeting itself, gives a snapshot of the economy that has since moved on. The US economy has shown positive signs in the last few weeks not seen since the start of the year.

St Louis Fed president Bullard summed it up by saying the minutes were ‘stale’. And last night’s US data did nothing to support QE3 bulls or bears as it showed a fall in jobless claims but a rise in new family homes.

This left Wall Street to dwell on the downside of weak China PMI data, slumping German exports and a eurozone teetering close to recession.

The S&P fell 0.8% but remains above 1400 points, the Dow Jones Industrial Average dropped 0.9% while the NASDAQ gave up 0.7%.

Traders are still gearing up for next week’s Fed meeting but there are fears the central bank has dug a Jackson Hole for itself and will only disappoint.