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On 28 September, the STI pierced through 25 August lows of 2808.31 which had held off a couple of attempts for most of September, and flushed out bull stops. This probably led the Index further south below the key 2800 level, touching over three-year lows at 2780.74.
The fact of the matter is that the index has long been in a downtrend. The price level is below the moving averages of multiple timeframes (20, 50, 100, and 200), suggesting bears are already in the driving seat over the short and medium term period.
Therefore, it is clear that the path of the least resistance is towards the downside. In the last 10 weeks, the STI closed lower nine times out of 10. It is in bear territory, having fallen over 20% from the highs of 3544.51 in mid April. We have also seen volatility tapered off for most of September, which means there could be an increase in volatility in the near term. Already, the volume has been picking up over the last few sessions.
In terms of macro outlook, Singapore’s growth prospects are not looking overly optimistic, due primarily to China’s weakening growth. Recent economic data bear this out, with the August industrial production tumbling 7% y/y. Retail sales and exports were also weak. Lower commodity prices also affected the STI outlook, particularly on shares of commodity suppliers, such as Noble and Golden Agri.
A close below the 2800 would signal more bearishness, suggesting that shorting the index might be a trading opportunity. An IG product similar to the STI is the Singapore Blue Chip, which is related closely to the MSCI Singapore Free Index. They move tick for tick with the STI.
The Singapore Blue Chip dipped below 310, but held above this level thereafter. A close below 310 could see the index sliding to as low as 309 in the coming sessions. The next big support is around 300, which was tested several times in 2011.