STI may eye rebound

The Straits Times Index (STI) has corrected around 2% in the past few weeks, since reaching almost 3550 in April.

People walk past an electronic ticker displaying market information in Singapore
Source: Bloomberg

The pullback was in line with regional markets, with the exception of Chinese equities.

Investor sentiments were dented by a confluence of global factors including the massive global bond selloff, as well as ongoing uncertainty surrounding the timing of the Fed interest rate hike and Greece’s default.

Locally, and from a fundamental perspective, disappointing earnings performance has also sapped market interest. Around two-third of companies have reported their quarterly earnings where only 30% beat estimates.

In addition, the decline in sales and earnings growth pushed the price-to-earnings ratio (P/E) to 15.4 times trailing 12-month earnings (as of 13 May 2015), which is above the six-year average of 12.1x.

So the market may be right being cautious, especially when the oft-quoted adage ‘Sell in May and go away’ is being bandied around. But the technical set-up shows a more optimistic picture, suggesting that the correction could fizzle out in the coming weeks.

Tellingly, the STI maintains within a bullish trend channel with the 100-day moving average providing good support. RSI indicator also bounced off its five-month lows, which could point to the formation of a RSI positive reversal.

Final batch of corporate earnings

Another nine companies are expected to release their earnings reports this week, which could inject some volatility into the STI. ComfortDelGro will report its earnings today, followed by Singtel and Singapore Airlines on Thursday, and StarHub on Friday.

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