Market Technical Outlook by Kenneth Koh Phillip Securities on 20Sep2013

1. Market Technical Outlook
A closer look
1.
2.
3.
4.
5.
6.
7.
8.
9.
Economic Snapshot
World Equities
Gold
S&P500
Intermarket Analysis
Sector Rotation
China
Singapore
A “not so secret” secret
Kenneth Koh
Markets & Equities Analyst
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Prepared: 20thSeptember 2013

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5. Macro conditions still suggest (Longer Term)
1.
2.
3.
4.
OW Equities (no change, maintain)
OW Commodities (9th Sep 13 OW from NW)
UW Gold (maintain UW since 25th Oct 12)
UW +10yr US Treasuries (maintain UW since 4th Jan 13)
… after the market has absorbed the postponing of bond tapering news
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5

6. US Economic Fundamentals keep getting better
•
•
•
•
US New Orders:
Capex non-defense ex-aircraft
(Source: BEA, CEIC, PSR est)
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
200
Jan-05
300
Jan-04
12mrs
US Govt Budget T4Q (US$b saar)
Jan-03
400
%y-y 12mma
Jan-02
500
%y-y 3mma
Jan-01
600
US Non-Farm Payrolls
(Source: CEIC, PSR est)
Jan-00
700
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
200
0
-200
-400
-600
-800
-1000
-1200
-1400
-1600
-1800
-2000
Jan-04
US Trade Deficit
(Source: CEIC, PSR est)
Jan-03
800
Jan-02
%y-y 3mma
Jan-01
%q-q sa
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
-0.5%
-1.0%
-1.5%
-2.0%
-2.5%
-3.0%
-3.5%
-4.0%
-4.5%
-5.0%
Jan-00
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
24%
20%
16%
12%
8%
4%
0%
-4%
-8%
-12%
-16%
-20%
-24%
-28%
-32%
Forward looking core-business investment is robust
Employment situation is on a very steady trend despite July’s below expectations print
Trade deficit is narrowing (shale energy)
Govt budget deficit narrowing as the sequester works its way thru the budget
(Source: BEA, CEIC, PSR est)
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6

7. US Corp Profit still trending higher
Likely to guide S&P500 along with it
12mma
2000
1900
1800
1700
1600
1500
1400
1300
1200
1100
1000
900
800
700
600
500
400
US Corp. Profits Aft. Tax (US$b, saar)
(Source: BEA, CEIC, PSR est)
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
T4Q p/e
F4Q p/e
S&P500
24
22
1,800
1,700
1,600
1,500
1,400
1,300
1,200
1,100
1,000
900
800
700
600
20
18
16
14
ETF: SPY.NYSE
(Source: Bloomberg)
12
10
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
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7

8. China’s slowdown has bottomed out
(Reiterate Buy ETF 83188.HK)
•
•
•
•
%y-y (3mma, 12mma) volume and freight moved in China have been steadily picking up
Inflation is not an issue hence no worries about interest rate rises
Industrial Profit growth returning
CSI 300 has put in a double bottom in the weekly, and valuations are rock bottom (BUY 83188.HK!)
9%
China Tpt & IP by Volume
(Source: CEIC)
40%
35%
CHINA CPI
(Source: CEIC)
8%
%y-y
%y-y 12mma
7%
30%
6%
25%
5%
20%
4%
15%
3%
10%
2%
%y-y 3mma
5%
1%
%y-y 12mma
0%
Source: Bloomberg
27
T4Q p/e
Fwd p/e
CSI300
25
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
-2%
Jan-04
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
-1%
29
China Industrial Profit
(Source: CEIC)
5750
5250
4750
%y-y 3mma
23
%y-y 12mma
21
3750
19
3250
17
2750
15
2250
13
1750
11
1250
9
750
4250
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
-10%
110%
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
-10%
-20%
-30%
Jan-04
Jan-03
-5%
Jan-03
0%
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8

9. Global rebound on the cards
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Japan Mfg PMI
Source: Bloomberg
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
• Along with the US and China, the
EZ and JP are both picking up
• Altogether, that 75% of global
output
• GLOBAL PMIs suggest a global
growth rebound
60
58
56
54
52
50
48
46
44
42
40
38
36
34
32
Jan-06
Source: Bloomberg
Jan-05
EZ Svc PMI
Jan-04
EZ Mfg PMI
58
56
54
52
50
48
46
44
42
40
38
36
34
32
30
Jan-03
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
60
58
56
54
52
50
48
46
44
42
40
38
36
34
32
JPM Global Comp PMI
JPM Global Mfg PMI
JPM Global Svc PMI
Source: Bloomberg
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9

10. Global Growth to rebound?
Gold corroborates (Short SPDR Gold ETF O87.SGX)
•
•
•
•
•
US growth picking up
US trade deficit narrows
US govt budget deficit narrowing
US Corp Profit still trending higher
Macro conditions good for growth, good for the US$. What for hold Gold??
90
Dollar Index
Gold
1,900
1,800
1,700
1,600
1,500
1,400
1,300
1,200
1,100
1,000
900
800
700
30wkma
88
86
84
82
80
78
76
74
72
(Source: Bloomberg)
70
Jul-13
Jan-13
Jul-12
Jan-12
Jul-11
Jan-11
Jul-10
Jan-10
Jul-09
Jan-09
Jul-08
Jan-08
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10

11. Global Growth to rebound?
US Bond Markets corroborate
•
•
•
•
Strengthening US economy would cause Portfolios to cycle further out of bonds into stocks
This has already been happening with S&P500 outperforming Treasuries this year (see Technical Analysis later)
Prospect of end of QE does 2 things (1) the largest buyer – the Fed – is going to buy less and eventually stop 4q14
(2) signal that the US economy is strong enough to withstand QE tapering, hence stocks remain more attractive
than bonds.
As the short-dated end of the curve is anchored by the Fed Funds Rate, the long end will be sold, hence short
10yr Treasuries with ETF TBT.US
US Treasury 10yr - 2yr (L)
3.0
10yr Yield
2yr Yield
2.5
2.0
1.5
1.0
0.5
0.0
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
(0.5)
6.0
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
(0.5)
(1.0)
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11

12. Straits Times Index – Bull market not over
SG Corporate Earnings coming back!
STI
T4Q P/E
F4Q P/E
3,800
3,600
3,400
3,200
3,000
2,800
2,600
2,400
2,200
2,000
1,800
1,600
1,400
1,200
Jan-12
29
27
25
23
21
19
17
15
13
11
9
7
5
Jan-13
Jan-12
Jan-13
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
40%
Source: Bloomberg
CORPORATE EARNINGS %q-q
Source: Bloomberg
30%
SG
20%
10%
0%
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
-10%
-20%
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12

13. FTSE ALL-World ex-US
• Overweight Emerging Markets
• Breakout on better relative strength
vs. S&P500 leader
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14. Gold
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15. Gold
• Gold is bearish longer term
• Gold is bullish short term
• Major resistance zone between
1500-1600 and is a major selling
opportunity
On bear market, RSI resistance is around 70
Weekly MACD cross, short term up cycle
The recent gold surge is not accompanied by
outperformance of gold miners.
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15

16. • Gold is bearish longer term
• Gold is bullish short term
• Recent bullish candle is setting up
a potential ascending triangle.
• A break above 1400 implies further
upside to 1500 – 1550
• A break below 1300 implies further
downside to 1200.
Daily MACD cross, short term up cycle
Other indicators are not showing any
unusual strength,
I expect the long term downtrend to
continue … after possible short term
move.
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17. S&P500 (daily) 9 Sep 2013
Short term correction
until proven otherwise
The “otherwise” is starting to
show some hints.
$RUT:$SPX
$NYMO is encouraging.
But indecision candle at
resistance.
To trade:
- US SP 500 Index USD5 CFD
- ETF: SPX.AMEX
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17

18. S&P500 (daily) (Today)
$RUT:$SPX is normal.
$NYMO and RSI are getting
overbought.
Longer term bullish
Short term consolidation is
possible
To trade:
- US SP 500 Index USD5 CFD
- ETF: SPX.AMEX
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19. S&P500:
Breadth
Breadth indicators all behaving
normally
VIX is on the downtrend and hasn’t hit “complacent
levels” yet. Still room to run.
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19

20. Industrials Sector (Update).
Indecision on support
Weak indecision candle on support
?
If price can stay above $44.8 this week and next, it
implies further upside
S&P500: Keep an eye on industrials (they are the
present sector leader).
If industrials confirms the break below support, the
S&P may have more short term sell down.
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20

21. Industrials Sector (Update).
Pullback very probable
•Short term objective on 46.0 breakout achieved
•With Bearish daily star formation
•RSI is oversold
•A retracement to 46.5 is possible
This corroborates a possible small correction
in the S&P500
However, the good relative strength of all
breadth indicators imply that long term trend
is still up.
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21

22. Sector Glances
Financials start to turn down.
Cyclicals peaking.
Industrials leading.
Materials and Energy turning
up.
Cyclicals  Industrials 
Materials  Energy
(sequence of turning up)
More evidence of stage 4-5
business cycle (early-mid
expansion)
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22

23. Sector trends
Tech, Industrials, Materials
and Energy still
outperforming Staples and
Utilities.
Implies between stage 4
and 5 of market cycle.
Good to be in Sectors that
shows improving relative
strength momentum (top
left) leading into good
relative strength (top
right).
Long Oil Service Sector
(OIH). (See later)
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23

24. Sector Glance
Relative Performance vs
S&P500
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24

25. Sector Rotation
… this also corroborates
our assumption of Stage
4 of the economic cycle
and materials and energy
sector is to be favored.
Phase 4 strategy:
Short Bonds
Long Stocks
Long Commodities
Short Treasuries: TBT
Long Commodities: S&P GSCI
(ETF GSG.US)
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25

26. 2. Intermarket Relationships
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27. Intermarket Relationship
Short Treasuries:
(ETF TBT)
Long Commodities:
S&P GSCI (ETF
GSG.US)
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28. Intermarket Relationship
Short Treasuries:
(ETF TBT)
Long Commodities:
S&P GSCI (ETF
GSG.US)
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29. Long Commodities – ETF GSG.US
•
•
•
Global Growth is picking up
US, EZ, JP PMIs are picking up, China we saw is improving
Altogether, that 75% of global output
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Japan Mfg PMI
Source: Bloomberg
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
US Services PMI
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
US Mfg PMI
60
58
56
54
52
50
48
46
44
42
40
38
36
34
32
Jan-05
Source: Bloomberg
EZ Svc PMI
Jan-04
EZ Mfg PMI
Jan-03
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
58
56
54
52
50
48
46
44
42
40
38
36
34
32
30
(Source: CEIC, PSR est)
Jan-00
62
60
58
56
54
52
50
48
46
44
42
40
38
36
34
Jan-05
60
58
56
54
52
50
48
46
44
42
40
38
36
34
32
JPM Global Comp PMI
JPM Global Mfg PMI
JPM Global Svc PMI
Source: Bloomberg
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30. GSCI Index Fund
Breakout on high volume
Target Price: $37
Cut loss price: $32
Need to see if next week can
reclaim back above the
breakout point
Long Commodities:
S&P GSCI (ETF
GSG.US)
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31. Oil Service Sector
Energy is going to lead.
Oil service sector breakout on
improving relative strength.
Target Price: $52
Cut loss price: $44
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32. 2. Intermarket and Sector Analysis
Phase 4 strategy:
Short Bonds
Long Stocks (Materials, Energy)
Long Industrial Commodities
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33. Short 10yr US Treasuries – ETF TBT.US
•
•
•
•
Strengthening US economy would cause Portfolios to cycle further out of bonds into stocks
This has already been happening with S&P500 outperforming Treasuries this year (see Technical Analysis later)
Prospect of end of QE does 2 things (1) the largest buyer – the Fed – is going to buy less and eventually stop 4q14
(2) signal that the US economy is strong enough to withstand QE tapering, hence stocks remain more attractive
than bonds.
As the short-dated end of the curve is anchored by the Fed Funds Rate, the long end will be sold, hence short
10yr Treasuries with ETF TBT.US
3.0
US Treasury 10yr - 2yr (L)
10yr Yield
2yr Yield
2.5
2.0
1.5
1.0
0.5
0.0
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
(0.5)
6.0
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
(0.5)
(1.0)
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34. Treasuries
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35. 10-Year US Treasury Note Price
• If price breaks out of 125.0, it
implies further short term
upside. Price target is 126.0126.5.
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36. $TNX
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37. Downside Target for Bonds (based on spread)
• Assumes short term rates
remained unchanged.
• The probably target for the
$TNX (10 yr treasury) is
between 3.3 and 3.9% (33 and
39 here)
• If short term rates increase,
this increases the 10 year
treasuries yield ceiling.
• TBT (Double short ETF)
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38. TBT
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39. CSI300 (23 Aug 2013)
Potential double bottom base?
Trade: ETF: FTSE ChinaA50 or 83188.HK
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40. CSI300 (9 Sep 2013)
Potential double bottom base of
multi year bull?
Trade: FTSE China A50 USD1 CFD
Potential breakout of
ascending triangle
Potential breakout of
resistance line from
2012
Weekly MACD has
crossed – implying an
intermediate cycle
move
A successful breakout
implies a target of
between 2500 and 2600
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41. CSI300
Retracement to breakout point is
a good buying point
Breakout from
ascending triangle
Gap fill correction
Weekly MACD has
crossed – implying an
intermediate cycle
move
Improving macro in
China corroborates a
longer up move after
consolidation.
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42. STI (weekly) (5 Aug 2013)
Consolidating at resistance
Still negotiating the Resistance (R)
at 3260, as expected price stalled
at 3259
If there is another leg down, the
first objective is the key support
zone between 2930 and 3110. This
is the level of the clusters of
consolidation patterns in Feb and
July 12, a 50% to 61.8%
retracement of the impulse wave
from Dec 11 to Apr 13, as well as
the 0.618 to 1 ratio of the last down
move starting in Apr 13.
A price retracement to the blue
support zone should be seen as a
good buying opportunity.
NEXT
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43. STI
• Longer term bullish
• Short term may have
pullback
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44. STI
• Most likely scenario: pull
back till 3200
• Further upside is implied if
price can clear the resistance
at 3277
• We are biased to the upside
due to improving macro
economics
• A break up of 3277 implies a
target back to 3450
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45. Macro conditions still suggest (longer term)
1.
2.
3.
4.
OW Equities (no change, maintain) Technicals: short pullback possible
OW Commodities (9th Sep 13 OW from NW): Technicals: wait and see
UW Gold (maintain UW since 25th Oct 12) Technicals: wait and see
UW +10yr US Treasuries (maintain UW since 4th Jan 13) Technicals: wait and see
… after the market has absorbed the postponing of bond tapering news
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46. Disclaimer
This presentation is provided to you for general information only and does not constitute a recommendation, an offer or solicitation to subscribe
for, purchase or sell the investment products mentioned herein. It does not have any regard to your specific investment objectives, financial
situation and any of your particular needs. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss
arising whether directly or indirectly as a result of you acting based on this information. Investments are subject to investment risks including the
possible loss of the principal amount invested. The value of the units in any fund and the income from them may fall as well as rise. Access to
services and your account may be affected by market conditions, system performance and other reasons.
The information contained in this presentation has been obtained from public sources which PSPL has no reason to believe are unreliable and
any analysis, forecasts, projections, expectations and opinions (collectively the “Research”) contained in this presentation are based on such
information and are expressions of belief only. PSPL has not verified this information and no representation or warranty, express or implied, is
made that such information or Research is accurate, complete or verified or should be relied upon as such. Any such information or Research
contained in this presentation is subject to change, and PSPL shall not have any responsibility to maintain the information or Research made
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