Hi everyone!
This article will be a little different - I will be giving my outlook on the $Straits Times Index(STI.SI)$.
Essentially, the STI has gone nowhere for the past 16 years and has been consolidating in a large bull flag pattern that is forming higher highs and higher lows. Interestingly enough, I noted that we tested the 1.618 Fib extension level of the initial run up after the DCB bust in 2007, before crashing towards new lows.
Since we have been rangebound, it wouldn’t be advisable to go too heavy into either long or short positions, as we are unsure of future direction. However, I would like to bring your attention to some observations I noticed on lower timeframes (i.e. Daily):
Before the GFC in 2007-2008, the STI was trading in a flag pattern that failed to make higher highs while making higher lows (see black trendlines). Eventually, we made lower lows and it led to a capitulation move that resulted in a higher low (green trendline).
A similar fractal was spotted before the COVID-19 crash, as you can see here:
The current pattern looks similar to the 2016-2020 pattern, with lower highs and higher lows. Unless we break out of this pattern, we could be staring at a precipitous drop below 3,000, albeit to form a higher low, most likely (green trendline).
However, what could lead us to break out?
For one, REITs stand to gain from lower interest rates in the future. As the US Federal Reserve proceeds to cut interest rates, we are likely to see REITS leading the markets: https://www.straitstimes.com/business/companies-markets/reits-lead-singapore-stocks-higher-after-fed-holds-rates-steady-sti-up-06#:~:text=The%20STI's%20top%20constituent%20was,hopes%20of%20cheaper%20borrowing%20costs.
REITS and Real Estate plays have been very badly hit by the persistently high interest rates, in terms of their borrowing costs and their bottom lines, as well as their share price performance:
Source: https://sginvestors.io/market/sgx-share-price-performance/straits-times-index-constituents
They present investment opportunities in the longer-term, and I’m expecting them to outperform other sectors.
Sentiment: HOLD
Summary (with Price Targets - NFA):
Long-term flag pattern with downside towards 2,600 - 2,700 (if we reject the upper trendline once more) and upside towards 3,600 and higher (new ATHs) if we break out of the pattern
Not advisable to start any new positions, other than SG REITS, where they stand to benefit significantly from rate cuts in the future - it might take time for this thesis to play out, but if your investment horizon is > 10 years, then you’re likely to be fine
Alright, that’s all for today’s post. See you all later!
$FTSE 100(.UKX.UK)$ $Straits Times Index(STI.SI)$ $S&P 500(.SPX)$ $HSI(HSI)$ $DAX - main 2403(FDAXmain)$
@TigerStars @TigerEvents @TigerWire @CaptainTiger @MillionaireTiger
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