Thursday, December 18, 2008

STI update - 18 Dec 08

If you have not noticed it from the chart, our STI seems to have bottomed on the 28 Oct 2008. From that day onwards, STI has been on an uptrend as shown by the positive line on the price chart. RSI and MACD are also showing positive divergence suggesting an uptrend. Furthermore STI is currently above its 25 days Moving Average (MA). The next resistance is probably at 1933 level which is the high on the 5 Nov.

STI chart - 18 Dec 08

Now why do I say that STI may have bottomed? The reason is because history may serve us as a very good lesson to understand the future. FSM has provided a historical figures of STI bear markets. I will just reproduce the table below.

Historical STI bear markets
Source: Fundsupermart

Assuming a high of 3906.96 on the 10 Oct 2007 and a low of 1473.77 on the 28 Oct 2008, that means STI had fallen by 62.28% from the peak which is on par with the Asian Financial crisis period. And assuming that Asia has truly come out stronger from that financial crisis, I believe STI should not fall worse than 62% during the current crisis. So I would say the risk of STI falling further is limited but the reward of STI going higher is definitely more appealing.

FED fund rate is already at the lowest level signaling that the major economy of the world is serious about growth in the country. We cannot expect the recovery of global economy to take place in an instant but if you are a long term investor, this is again a good opportunity to accumulate more battered stocks. As for me, I have already put in a bigger investment amount than previous months in December alone. I shall update my transactions as usual in my monthly stocks portfolio.

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