Last Friday, the ST Index dropped marginally below the 2980 support level. That is despite a mini-rally at Dow Jones Thursday. It is of great concern to me as the next support is at 2920 and the STI trading at that range implies poor confidence in the economy and weak overall sentiment in stocks.
One major reason for the gloom is because of a drastic drop of 496 points in the Baltic Dry Index – a shipping and trade index that monitors changes in transportation costs of raw materials such as metals, grains and fossil fuels by sea.
This provides investors with an insight into global supply and demand trends. We can infer future economic growth (if the index is rising) or contraction (index is falling) because the goods shipped are raw, pre-production material.
However, this Monday, we saw some cheer in the local market on the back of consecutive Dow Jones spikes. The STI closed 57.36 points higher at 3036.92, volume of 1.246 billion, and gainers/losers stood at 299/272.
I am not surprised about this technical rebound as all indicators point to the STI being in an oversold region. The critical question now is whether we are looking at a technical correction or a more long-lasting uptrend?
I believe If the STI can test 3150 and move up from there, it is boom time again. If not, volatility still hold sway here.
There are mixed news for the local economy. Economists in MAS survey concurred on a GDP growth of 5.5% for this year which is a credible performance given the slowdown in the US economy, but unemployment in Q1 rose slightly to 2%.
Oil prices surge near trading record of $140 on weak dollar, then fall sharply on profit-taking by investors after a $5 one-day run up. Dow Jones retreated by 38.27 to 12269, Nasdaq and S&P 500 experienced slight gains.
Saudi Arabia said Sunday that it would increase oil production by 200,000 barrels a day over the next month but analysts feel that this is insufficient to meet global demand.
With oil weighing heavily on the equation, I am keeping my fingers crossed whether bulls in the stock market can dominate for any sustained period.