Trade Idea: Short Singapore Blue Chip

The Straits Times Index (STI) started the new week on a strong selling tone

SGX Building
Source: Bloomberg

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.

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This information has been prepared by IG, a trading name of IG Markets Limited and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. International accounts are offered by IG Markets Limited in the UK (FCA Number 195355), a juristic representative of IG Markets South Africa Limited (FSP No 41393). South African residents are required to obtain the necessary tax clearance certificates in line with their foreign investment allowance and may not use credit or debit cards to fund their international account.