ASEAN Strategy - CIMB Research 2016-09-22: Alpha Edge ~ Need to consider bearish wave count for Asia

ASEAN Strategy - CIMB Research 2016-09-22: Alpha Edge ~ Need to consider bearish wave count for Asia Market Strategy

ASEAN Strategy - Alpha Edge: Need to consider bearish wave count for Asia

  • Recent decline in MSCI Asia ex-Japan (MAxJ) did some technical damage to the Index. Hence, we need to consider alternative bearish wave count for MaxJ.
  • S&P 500 might see a bit more weakness in the immediate term but long-term outlook is bullish.
  • The US dollar and euro could reach a major turning point soon.
  • Malaysia’s KLCI and Singapore’s STI could see one more up leg as long as support trendline holds.

MAxJ sustained some technical damage over the past few weeks 

  • The correction in Asia’s equity markets in the past fortnight caused some technical damage to the MSCI Asia ex-Japan (MAxJ). We were earlier looking at the MAxJ potential reverse Head & Shoulder formation, targeting 590pts. This formation is still valid as long as the MAxJ does not fall below 517pts. 
  • We would have to turn negative on Asia if 517pts is broken. A rally above the recent 563pts high would be a positive sign for the index.

Need to consider potential bearish wave count for MAxJ 

  • We believe that there is a need to consider the potential bearish wave count for the MAxJ due to failure to overcome its resistance channel trendline three weeks ago. When indices trade in a channel and moves in three waves (a-b-c), it is usually a consolidation trend or just a rebound. If this bearish wave count is taking place, MAxJ could retest the Jan 2016 low over the next few months.

A little more downside for S&P 500 

  • The correction has kicked in for the US equity markets. The S&P 500 has declined 2-3% off the recent peak but we believe the index has not bottomed yet. 
  • We are looking for the S&P 500 to correct another 3-4% towards the 2,070-2,080 levels before the index finally bottoms. 
  • The long-term bull remains intact for the S&P 500, targeting 2,500- 3,000pts in 2017.

US$ and euro at a major turning point soon? 

  • The Dollar Index and the euro have been trading sideways since end-1Q15, likely in a triangle formation. If we are right, this triangle formation should end in the next few weeks and we should see a stronger US dollar in 4Q16. However, for the euro, it would be the other direction. The euro should break down to new major lows in the next quarter.

One more upleg for KLCI and STI? 

  • As long as Malaysia’s KLCI and Singapore’s STI do not break below their respective support trendlines, we are looking for one more up leg for these two indices over the next few weeks. 
  • Thailand’s SET and Philippines Composite Index have broken down below their major support trendlines.

STI support trendline must hold 

  • Like KLCI, Singapore’s STI could be completing its sideways trend soon, to be followed by another wave c upleg. 
  • The support trendline, currently at 2,805pts must hold. Breakdown of this support trendline would be very negative for STI.

S$ breaks resistance trendline 

  • The S$-US$ weekly chart shows the Singapore dollar overcoming its major resistance trendline a month ago and is currently testing the 40-week SMA (S$1.37). 
  • Weekly MACD and RSI technical indicators are positive. 
  • The Singapore dollar should heading towards the 1.40 levels

Nigel FOO CIMB Securities | 2016-09-22