Wednesday, January 26, 2011

I think .. the market is going to see a Chinese New Year rally

According to the CLSA fengshui guide, investors will not see a rally this year. February will be a month of decline. Besides, I am of the opinion that a bottom will only be formed some time towards the middle of February, completing a correction. But, the US stock market has continued with its rally, and the local market today has rallied by 40 points, with key counters reversing from many days of declines and bouncing off important supports. So, to my disappointment, a correction will not happen, yet again.

Last year, the STI quickly rebounded more than 100 points, or over 4% from sub 2,700 levels to just six points short of the 2,800 levels in six days, ahead of CNY. In 2009, the market also saw a 3.6% rebound in three days during the CNY period. A check on the charts show that the STI is very close to oversold, and is now rebounding from it. Counters which are oversold and rebounding include Capitaland (bullish engulfing), SPDR Gold, Global Log (bullish engulfing) and Wilmar. Counters which are rebounding from important supports include Noble and STX OSV (bullish engulfing). Foreign counters displaying similar behaviour are Zhaojin, Sands China, Petrochina and Air China (bullish engulfing).

What will I buy? Noble is confirmed. Yesterday, palm oil giant Wilmar International tumbled another 1.8% to reach another new low. Its closing price of $5.34 is the lowest in almost one and a half years. The last time it closed at this level was in July 2009. Wilmar was also the second worst index performer both last year 2010 with its – 12.4% return and this year thus far (–5.7%). I am keen to take this counter back to my portfolio, despite its ugly technicals and the fact that I lost money on it the last time. I am also fundamentally and technically attracted to Capitaland even though it is not viewed favourably. Lastly, I am interested in Gold and Zhaojin(gold mining), which is bouncing off from its oversold level. Nevertheless, my time frame for holding these stocks could be very short.

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