Wednesday, September 19, 2007

STI up 3.47% to close at 3594: Aftermath of FED rate cut

Dow surged strongly yesternight after FED surprised the market with a bigger than expected reduction in the interest rate. FED reduced interest rate by 50 basis point. Dow surged up 335 pts, representing an increase of 2.51%.

STI reacted strongly in the morning when it opened for trading. It gapped up to 3600 (3.47%) before profit taking starts to take place. STI closed 116 pts up (3.35%) to close at 3594, just 6 pts short of clearing 3600. We are nearing the pre-subprime crisis level. The highest ever reached in a period before the selldown was 3685. Should STI clear 3600, 3685 would be the major resistance. Clear that, and we're on our merry way to 4100 (as predicted by Joseph's cycle). Volume of 2.5 billion is quite alright, but was nowhere near the last time when STI near 3600. I remembered volume of 3-4 billion is quite common then.

I think STI resistance should be at 3600 and 3640.

Oh, that's a double whammy interest rate cut. Maybe even triple whammy too. What am I talking about? HK monetary authority announced early this morning that it reduced the interest rate by 50 basis point (to 6.25%) too, following closely FED rate cut. Philippines also hinted on following FED's move by cutting interest rate too. Haha, to me, that's bad monetary policy. Thankfully Bank of Japan didn't reduce interest rate too, otherwise no need to yen unwinding, it's yen loading! Providing more liquidity to artificially sustain the economic is one surefire way to create a bubble. Oh, que sara sara, whatever will be will be (but let me sell off first) ;P

HK responded by closing up 977 pts. Shanghai is always the odd one out. When worldwide market crashed, SSE is the only one up. But today, it's the other way. It fell to close down 0.55%, I'm not sure why too. Worldwide market responded strongly by rallying up.

Europe is up 2-3%, possibly in response to FED's cut. The important thing to take note of is the how the banks results will be like in the coming earnings reporting seasons. Should be happening in Oct for US, which is real soon. That should provide real cannon fodder for shortist if the profit of the banks are severely affected by subprime issues.

Stocks in SGX soared strongly in the morning, when the kancheong spiders went in to buy. Profit taking took place around 30 mins (even before) after market opens, before slowly trading up again. I thought it's real important to put in the intraday chart for STI so that I will have a good reference material should FED reduce interest rate in the future. So here it is:

Notice what happens if you buy first thing in the morning. It is always followed by a sharp drop as speculators cash in to take profit. If buying have to be done on such a strong rally day, it should be done after the kancheong spiders had bought up and the stock price are sold down subsequently. VERY IMPORTANT LESSONS: I remembered countless times where I bought in when I should be selling. The latest of such emotional buying is CSC when it announced it won the IR piling contract!

Construction stocks are still lagging. Lianbeng trading halt today. After market close, it announced that it had a share placement exercise of 40,000,000 new shares offered at a price of S$0.425 per placement share. This offer price represents a discount of around 1.21% from current price. Okay lah, at least the offer price isn't damn cheap, so won't see such a fierce selldown that almost always occurs when a company do a share placement. Yongnam also did such things before.

The proceeds raised is used for the Lincoln lodge site acquired by Phileap Pte Ltd, a joint venture company in which Lianbeng had a 25% equity stake in. The rest is used for working capital needs. Don't like share placements...

Straits asia seem to have broken out of symmetrical triangle. My target price for straits is 1.59 based on flagpole. Other indicators seem to be able to support the subsequent movement after breakout. We should see more upside for straits asia these few days, unless breakout failed of course.

Dow is up 90 points now.