Which would you choose?

If you had a 20% chance to win $5000, winning nothing on the 80%, Or an 80% chance to win $1000, winning nothing on the 20%, which would you choose?

Think about it.

What would you do ?

Lets say that you are given a choice of 2 things- $5000 cash, or a holiday package to your favourite destination worth $7000.

Which would you choose and why ?

5 simple technical indicators that I often use

Technical analysis can be quite useful in determining good entry and exit points, whether for short-term or long-term positions. Of course using Fundamental Analysis will be more important for long-term positions.

Candlesticks aside, here are 5 simple technical indicators that I frequently use. These indicators are best used in conjunction with one another to provide a more accurate picture.

I have attached the latest chart of Starhub to use as an example.



The first thing to do when looking at a chart is to determine the direction of the stock- whether it is in a downtrend, uptrend or in a sideways trading movement. Then I would take a look at some of these technical indicators.

1. Support and resistance lines

Support and resistance represent key junctures where the forces of supply and demand meet. Prior to the breakout, resistance was established at 2.30 and short-term support was at 2.15. Longer-term support, established last October is at 1.87. Since then there was a large move upwards which sent prices as high as 2.38, reaching a 15-month high. The breakout could have turned the 2.30 resistance level into support.

Strategy: Buy when price reaches support levels and sell/reduce positions when price approaches resistance levels.

2. Trendlines

Trend Lines are an important tool in technical analysis for trend identification. They can be drawn by connecting 2 or more price points together. We can see that Starhub is in an obvious uptrend. Prices are currently at the top of the trend channel. Decisive trendline breaks can signal that the a trend change is imminent.

3. RSI ( Relative Strength Index)

The RSI reading shows whether a stock is oversold or overbought. Readings can range from 0 to 100 and a reading of 30 or less shows oversold conditions while readings of 70 or more show overbought conditions. However stocks can remain overbought or oversold for long periods so it is best to use this indicator together with other indicators. Keep a look out for positive divergences, where the indicator makes a higher high even though the price does not, and negative divergences, where the indicator fails to make a higher high even when the price makes a new high. Starhub is mildly overbought at the moment with an RSI reading of 72.

Strategy: Be wary when stock is in overbought region. Accumulate when positive divergence seen and sell/reduce positions when negative divergence seen.

4. MACD

MACD- A simple indicator which uses moving averages, typically calculated from the 12 and 26 day EMA (Exponential moving averages).It is best to use it together with other indicators as there can be fake moves. For Starhub, there are no sell signals for the MACD yet. The blue line is still above the signal line.

Strategy: Sell when the MACD line moves below the signal line, center line or when negative divergence is observed. Buy when the MACD line moves above the signal line, center line or when positive divergence is observed.

5. Bollinger bands

Bollinger bands- another useful indicator which measures volatility and relative price levels over a period of time. They are useful in identifying periods when prices are at extreme, and possibly unsustainable, levels. Prices tend to reverse when they exceed the upper or lower band. Also, when the bollinger bands tighten up, it usually shows that a large move is imminent. For Starhub, the last closing price of 2.36 is just out of the upper bollinger band at 2.35, so a short pullback may be likely.

There are other useful technical indicators such as moving averages, ADX etc but I will stop here for now.

STI - 1 more hurdle to clear...

If it is going to show a true breakout to the upside.

The market showed considerable strength today, reversing all of yesterday's losses and more with a 1.9% gain to close at 2943.02. Gainers outnumbered loses by 360 to 129. Although the figures seem impressive, the volume of 1415M shares traded (compared to 1646 M the day before) was less so, and in fact quite mediocre.

STI made a high of 2946.28 today, a high close for the year but this is still slightly short of the high of 2947.08 attained on 11 Jan 2010. In order for a breakout to the upside to be possible, STI has to clear the hurdle of 2947 convincingly over the next several sessions. This could possibly stir more buying interest.

More and more index stocks are making new 52-week highs, such as Jardine C&C($31.28), KeppelCorp( $9.44) , Starhub ($2.36) and NOL ($2.15). However there are several laggards whose prices have yet to make new 52-week highs, such as Singtel($3.19) , Capitaland($4.04) and SGX($7.73) ( which is one of the most bearish stocks in the index now, currently below its 20, 50 and 200 day MA)

However, STI will also face considerable resistance at this level.

Take a look at the long-term chart. STI faces 3 resistance points at the 2950 level. If the breakout fails, it could result in a bearish double-top formation..

STI- Where is it headed ?

The STI has been consolidating around the 2880-2920 level of late. It is still showing relative strength and is well off the low of 2665 attained on 8 Feb. Volumes have been rather low of late, signalling that many investors are still on the sidelines, waiting for clearer signals before they move in. Will the corporate results in Apr-May provide sufficient strength for the STI to cross the 3000 barrier?

However it is close to overbought territory with an RSI in the 60s. The MACD line isalso almost converging with the signal line. A minor correction could produce a bearish MACD crossover. if the STI fails to cross the previous high of 2950, it could develop a double top pattern, which is rather bearish.


For the STI, I see 3 possible scenarios.

1) Consolidation around the 2850- 2930 level for the next 2-3 weeks, before breaking through the 3000 barrier

2) Consolidation for 2-3 weeks, before experiencing a 3-5% correction to 2750-2800. The uptrend then resumes.

3) The STI experiences a correction of 7-15%, possibly falling to 2500-2600.


I am leaning towards the 2nd scenario. Which scenario do you think is most likely ?




Bearish MACD divergence was also seen on the Nikkei. There is negative divergence on both the MACD and the MACD histogram, both on different time frames. The index made a higher high at 10996.37 on 26 Mar while the indicator failed to make a higher high.

Capitaland Technical analysis

Decided to do a TA on Capitaland. Any comments would be appreciated.


Do click on the chart to take a better look.

As you can see, prices have broken down from a plateau and double top and are now trading in the 3.62-4.00 region. There is an unfilled gap created on 22 Jan by a large move downwards. It remains to be seen whether prices will recapture that region. I do not think it will be easy as there is some short-term resistance around 4.02 to clear first. 4.02 was tested unsuccessfully after which prices retreated to the 3.70-3.80 level. The more times a resistance is tested, the more formidable it becomes. There is some fairly strong support at 3.60-3.70

Prices are just above the 200-day moving average at 3.89, which should provide short-term support.

As for the indicators, MACD is still trending up above the signal line, which is slightly bullish. RSI is neither overbought or oversold at 53%.

For the next week, I expect Capitaland to retest the 4.00-4.02 region. How it performs after that will depend on whether prices can clear the resistance at 4.02. I expect the possibility of short-term upside to be greater than the possibility of downside.

February in review

February was a quiet month of consolidation for most financial markets, which took a breather from the more significant correction in January. After hitting a low during 5-6 Feb, most markets bounced back and have been inching up steadily for the remainder of the month. Despite mixed economic news from the US such as jobless claims rising 12% in a few weeks to 496k and existing home sales declining by some 23% in 2 months, the markets shrugged it off and continued trading in a narrow range. Trading volumes in February were also noticeably lower than January. The STI ended flat, up only 5.5 points to 2750.8

Many experts are divided in their outlook over the next few months, however it seems to me that more people are bullish than bearish. For me, I am of the opinion that the markets will go lower first before heading higher. I do not reckon that the STI high of 2947 will be surpassed anytime soon. However a correction of 5-10% would present a good opportunity to increase one's positions in blue chip and other strong dividend-yielding stocks, such as SPH, Suntec Reit, SATS, Starhub, Noble, Olam, CDL Hospitality etc.
Over the longer term (1-3 years), I am more bearish, as there are several problems that have not been sorted out.

Take a look at the table below to see how some of the global markets performed this year.

Name	Jan change	Feb change	YTD change
STI	-5.3%	+0.2%	-5.1%
Hang Seng	-8.0%	+2.4%	-5.8%
SSE	-8.8%	+2.1%	-6.9%
Nikkei	-3.3%	-0.7%	-4.0%
DJIA	-3.5%	+2.6%	-1.0%
Nasdaq	-5.4%	+4.2%	-1.3%
S&P	-3.7%	+2.9%	-1.0%