Phillip securities market outlook seminar market technical outlook

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Market Technical Outlook A closer look

1. Economic Snapshot

2. World Equities

3. Gold

4. S&P500

5. Intermarket Analysis

6. Sector Rotation

7. China

8. Singapore

9. A “not so secret” secret

Kenneth Koh Markets & Equities Analyst Phillip Securities Research Pte Ltd Prepared: 20thSeptember 2013



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5

Macro conditions still suggest

1. OW Equities (no change, maintain) 2. OW Commodities (9th Sep 13 OW from NW) 3. UW Gold (maintain UW since 25th Oct 12) 4. UW +10yr US Treasuries (maintain UW since 4th Jan 13)

(Longer Term)

… after the market has absorbed the postponing of bond tapering news



6

US Economic Fundamentals keep getting better

-32%-28%-24%-20%-16%-12%-8%-4%0%4%8%

12%16%20%24%

Jan

-00

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

US New Orders:Capex non-defense ex-aircraft(Source: BEA, CEIC, PSR est)

%q-q sa

%y-y 3mma

• Forward looking core-business investment is robust • Employment situation is on a very steady trend despite July’s below expectations print • Trade deficit is narrowing (shale energy) • Govt budget deficit narrowing as the sequester works its way thru the budget

-5.0%-4.5%-4.0%-3.5%-3.0%-2.5%-2.0%-1.5%-1.0%-0.5%0.0%0.5%1.0%1.5%2.0%2.5%

Jan

-00

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

US Non-Farm Payrolls(Source: CEIC, PSR est)

%y-y 3mma

%y-y 12mma

-2000

-1800

-1600

-1400

-1200

-1000

-800

-600

-400

-200

0

200Ja

n-0

0

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

(Source: BEA, CEIC, PSR est)

US Govt Budget T4Q (US$b saar)

200

300

400

500

600

700

800

Jan

-00

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

US Trade Deficit(Source: CEIC, PSR est)

12mrs



7

US Corp Profit still trending higher Likely to guide S&P500 along with it

6007008009001,0001,1001,2001,3001,4001,5001,6001,7001,800

10

12

14

16

18

20

22

24

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

ETF: SPY.NYSE(Source: Bloomberg)

T4Q p/e

F4Q p/e

S&P500

400500600700800900

10001100120013001400150016001700180019002000

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

(Source: BEA, CEIC, PSR est)

12mma

US Corp. Profits Aft. Tax (US$b, saar)



8

China’s slowdown has bottomed out (Reiterate Buy ETF 83188.HK)

• %y-y (3mma, 12mma) volume and freight moved in China have been steadily picking up • Inflation is not an issue hence no worries about interest rate rises • Industrial Profit growth returning • CSI 300 has put in a double bottom in the weekly, and valuations are rock bottom (BUY 83188.HK!)

China Tpt & IP by Volume

(Source: CEIC)

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

%y-y 3mma

%y-y 12mma

China Industrial Profit

(Source: CEIC)

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

%y-y 3mma

%y-y 12mma

CHINA CPI

(Source: CEIC)

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

Jan-0

3

Jan-0

4

Jan-0

5

Jan-0

6

Jan-0

7

Jan-0

8

Jan-0

9

Jan-1

0

Jan-1

1

Jan-1

2

Jan-1

3

%y-y

%y-y 12mma

Source: Bloomberg

9

11

13

15

17

19

21

23

25

27

29

Jan-0

5

Jan-0

6

Jan-0

7

Jan-0

8

Jan-0

9

Jan-1

0

Jan-1

1

Jan-1

2

Jan-1

3

750

1250

1750

2250

2750

3250

3750

4250

4750

5250

5750

T4Q p/e

Fwd p/e

CSI300



32

34

36

38

40

42

44

46

48

50

52

54

56

58

60

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

Source: Bloomberg

EZ Mfg PMI

EZ Svc PMI

30

32

34

36

38

40

42

44

46

48

50

52

54

56

58

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

Source: Bloomberg

Japan Mfg PMI

32

34

36

38

40

42

44

46

48

50

52

54

56

58

60

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

Source: Bloomberg

JPM Global Comp PMI

JPM Global Mfg PMI

JPM Global Svc PMI

9

Global rebound on the cards

• Along with the US and China, the EZ and JP are both picking up

• Altogether, that 75% of global output

• GLOBAL PMIs suggest a global growth rebound



10

Global Growth to rebound? Gold corroborates (Short SPDR Gold ETF O87.SGX) • US growth picking up • US trade deficit narrows • US govt budget deficit narrowing • US Corp Profit still trending higher • Macro conditions good for growth, good for the US$. What for hold Gold??

(Source: Bloomberg)

70

72

74

76

78

80

82

84

86

88

90

Jan-0

8

Jul-0

8

Jan-0

9

Jul-0

9

Jan-1

0

Jul-1

0

Jan-1

1

Jul-1

1

Jan-1

2

Jul-1

2

Jan-1

3

Jul-1

3

700

800

900

1,000

1,100

1,200

1,300

1,400

1,500

1,600

1,700

1,800

1,900Dollar Index Gold 30wkma



11

Global Growth to rebound? US Bond Markets corroborate

• Strengthening US economy would cause Portfolios to cycle further out of bonds into stocks • This has already been happening with S&P500 outperforming Treasuries this year (see Technical Analysis later) • Prospect of end of QE does 2 things (1) the largest buyer – the Fed – is going to buy less and eventually stop 4q14

(2) signal that the US economy is strong enough to withstand QE tapering, hence stocks remain more attractive than bonds.

• As the short-dated end of the curve is anchored by the Fed Funds Rate, the long end will be sold, hence short 10yr Treasuries with ETF TBT.US

(0.5)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Jan-0

3

Jan-0

4

Jan-0

5

Jan-0

6

Jan-0

7

Jan-0

8

Jan-0

9

Jan-1

0

Jan-1

1

Jan-1

2

Jan-1

3 (1.0)

(0.5)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0US Treasury 10yr - 2yr (L) 10yr Yield 2yr Yield



12

Straits Times Index – Bull market not over SG Corporate Earnings coming back!

Source: Bloomberg

1,2001,4001,6001,8002,0002,2002,4002,6002,8003,0003,2003,4003,6003,800

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

5

7

9

11

13

15

17

19

21

23

25

27

29STIT4Q P/EF4Q P/E

CORPORATE EARNINGS %q-q

Source: Bloomberg

-20%

-10%

0%

10%

20%

30%

40%

Jan-0

3

Jan-0

4

Jan-0

5

Jan-0

6

Jan-0

7

Jan-0

8

Jan-0

9

Jan-1

0

Jan-1

1

Jan-1

2

Jan-1

3

SG



FTSE ALL-World ex-US

• Overweight Emerging Markets

• Breakout on better relative strength

vs. S&P500 leader



Gold



Gold

15

• Gold is bearish longer term

• Gold is bullish short term

• Major resistance zone between

1500-1600 and is a major selling

opportunity

Weekly MACD cross, short term up cycle

On bear market, RSI resistance is around 70

The recent gold surge is not accompanied by

outperformance of gold miners.



• Gold is bearish longer term

• Gold is bullish short term

• Recent bullish candle is setting up

a potential ascending triangle.

• A break above 1400 implies further

upside to 1500 – 1550

• A break below 1300 implies further

downside to 1200.

Daily MACD cross, short term up cycle

Other indicators are not showing any

unusual strength,

I expect the long term downtrend to

continue … after possible short term

move.



S&P500 (daily) 9 Sep 2013

17

The “otherwise” is starting to

show some hints.

$RUT:$SPX

$NYMO is encouraging.

But indecision candle at

resistance.

Short term correction until proven otherwise

- US SP 500 Index USD5 CFD

- ETF: SPX.AMEX

To trade:



S&P500 (daily) (Today)

$RUT:$SPX is normal.

$NYMO and RSI are getting

overbought.

Longer term bullish

Short term consolidation is

possible

- US SP 500 Index USD5 CFD

- ETF: SPX.AMEX

To trade:



19

VIX is on the downtrend and hasn’t hit “complacent levels” yet. Still room to run.

S&P500: Breadth

Breadth indicators all behaving

normally



20

Weak indecision candle on support

Industrials Sector (Update). Indecision on support

S&P500: Keep an eye on industrials (they are the

present sector leader).

If industrials confirms the break below support, the

S&P may have more short term sell down.

If price can stay above $44.8 this week and next, it

implies further upside

?



21

•Short term objective on 46.0 breakout achieved

•With Bearish daily star formation

•RSI is oversold

•A retracement to 46.5 is possible

This corroborates a possible small correction

in the S&P500

Pullback very probable

Industrials Sector (Update).

However, the good relative strength of all

breadth indicators imply that long term trend

is still up.



Sector Glances

22

Financials start to turn down.

Cyclicals peaking.

Industrials leading.

Materials and Energy turning

up.

Cyclicals Industrials

Materials Energy

(sequence of turning up)

More evidence of stage 4-5

business cycle (early-mid

expansion)



23

Sector trends

Tech, Industrials, Materials

and Energy still

outperforming Staples and

Utilities.

Implies between stage 4

and 5 of market cycle.

Good to be in Sectors that

shows improving relative

strength momentum (top

left) leading into good

relative strength (top

right).

Long Oil Service Sector

(OIH). (See later)



Sector Glance

24

Relative Performance vs S&P500



Sector Rotation

25

Phase 4 strategy: Short Bonds Long Stocks Long Commodities

… this also corroborates our assumption of Stage 4 of the economic cycle and materials and energy sector is to be favored.

Short Treasuries: TBT

Long Commodities: S&P GSCI

(ETF GSG.US)



26

2. Intermarket Relationships



Intermarket Relationship

27

Short Treasuries:

(ETF TBT)

Long Commodities:

S&P GSCI (ETF

GSG.US)



Intermarket Relationship

28

Short Treasuries:

(ETF TBT)

Long Commodities:

S&P GSCI (ETF

GSG.US)



29

Long Commodities – ETF GSG.US

• Global Growth is picking up • US, EZ, JP PMIs are picking up, China we saw is improving • Altogether, that 75% of global output

32

34

36

38

40

42

44

46

48

50

52

54

56

58

60

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

Source: Bloomberg

EZ Mfg PMI

EZ Svc PMI

30

32

34

36

38

40

42

44

46

48

50

52

54

56

58

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

Source: Bloomberg

Japan Mfg PMI

32

34

36

38

40

42

44

46

48

50

52

54

56

58

60

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

Source: Bloomberg

JPM Global Comp PMI

JPM Global Mfg PMI

JPM Global Svc PMI

34

36

38

40

42

44

46

48

50

52

54

56

58

60

62

Jan

-00

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

(Source: CEIC, PSR est)

US Mfg PMI

US Services PMI



GSCI Index Fund

30

Long Commodities:

S&P GSCI (ETF

GSG.US)

Breakout on high volume

Target Price: $37

Cut loss price: $32

Need to see if next week can

reclaim back above the

breakout point



Oil Service Sector

31

Energy is going to lead.

Oil service sector breakout on

improving relative strength.

Target Price: $52

Cut loss price: $44



32

2. Intermarket and Sector Analysis

Phase 4 strategy: Short Bonds Long Stocks (Materials, Energy) Long Industrial Commodities



33

Short 10yr US Treasuries – ETF TBT.US

• Strengthening US economy would cause Portfolios to cycle further out of bonds into stocks • This has already been happening with S&P500 outperforming Treasuries this year (see Technical Analysis later) • Prospect of end of QE does 2 things (1) the largest buyer – the Fed – is going to buy less and eventually stop 4q14

(2) signal that the US economy is strong enough to withstand QE tapering, hence stocks remain more attractive than bonds.

• As the short-dated end of the curve is anchored by the Fed Funds Rate, the long end will be sold, hence short 10yr Treasuries with ETF TBT.US

(1.0)

(0.5)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

(0.5)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Ja

n-0

7

Ja

n-0

8

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

US Treasury 10yr - 2yr (L) 10yr Yield 2yr Yield



Treasuries



10-Year US Treasury Note Price

• If price breaks out of 125.0, it

implies further short term

upside. Price target is 126.0-

126.5.



$TNX



Downside Target for Bonds (based on spread)

37

• Assumes short term rates

remained unchanged.

• The probably target for the

$TNX (10 yr treasury) is

between 3.3 and 3.9% (33 and

39 here)

• If short term rates increase,

this increases the 10 year

treasuries yield ceiling.

• TBT (Double short ETF)



TBT



CSI300 (23 Aug 2013)

39

Potential double bottom base?

Trade: ETF: FTSE ChinaA50 or 83188.HK



CSI300 (9 Sep 2013)

40

Potential breakout of

ascending triangle

Potential breakout of

resistance line from

2012

Weekly MACD has

crossed – implying an

intermediate cycle

move

A successful breakout

implies a target of

between 2500 and 2600

Trade: FTSE China A50 USD1 CFD

Potential double bottom base of multi year bull?



CSI300 Retracement to breakout point is

a good buying point

Breakout from

ascending triangle

Gap fill correction

Weekly MACD has

crossed – implying an

intermediate cycle

move

Improving macro in

China corroborates a

longer up move after

consolidation.



42

STI (weekly) (5 Aug 2013)

NEXT

Still negotiating the Resistance (R)

at 3260, as expected price stalled

at 3259

Consolidating at resistance

If there is another leg down, the

first objective is the key support

zone between 2930 and 3110. This

is the level of the clusters of

consolidation patterns in Feb and

July 12, a 50% to 61.8%

retracement of the impulse wave

from Dec 11 to Apr 13, as well as

the 0.618 to 1 ratio of the last down

move starting in Apr 13.

A price retracement to the blue

support zone should be seen as a

good buying opportunity.



STI

• Longer term bullish

• Short term may have

pullback



STI

• Most likely scenario: pull

back till 3200

• Further upside is implied if

price can clear the resistance

at 3277

• We are biased to the upside

due to improving macro

economics

• A break up of 3277 implies a

target back to 3450



45

Macro conditions still suggest (longer term)

1. OW Equities (no change, maintain) Technicals: short pullback possible

2. OW Commodities (9th Sep 13 OW from NW): Technicals: wait and see

3. UW Gold (maintain UW since 25th Oct 12) Technicals: wait and see

4. UW +10yr US Treasuries (maintain UW since 4th Jan 13) Technicals: wait and see

… after the market has absorbed the postponing of bond tapering news



46

Disclaimer

This presentation is provided to you for general information only and does not constitute a recommendation, an offer or solicitation to subscribe

for, purchase or sell the investment products mentioned herein. It does not have any regard to your specific investment objectives, financial

situation and any of your particular needs. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss

arising whether directly or indirectly as a result of you acting based on this information. Investments are subject to investment risks including the

possible loss of the principal amount invested. The value of the units in any fund and the income from them may fall as well as rise. Access to

services and your account may be affected by market conditions, system performance and other reasons.

The information contained in this presentation has been obtained from public sources which PSPL has no reason to believe are unreliable and

any analysis, forecasts, projections, expectations and opinions (collectively the “Research”) contained in this presentation are based on such

information and are expressions of belief only. PSPL has not verified this information and no representation or warranty, express or implied, is

made that such information or Research is accurate, complete or verified or should be relied upon as such. Any such information or Research

contained in this presentation is subject to change, and PSPL shall not have any responsibility to maintain the information or Research made

available or to supply any corrections, updates or releases in connection therewith. In no event will PSPL be liable for any special, indirect,

incidental or consequential damages which may be incurred from the use of the information or Research made available, even if it has been

advised of the possibility of such damages.

You may wish to seek advice from a qualified financial adviser, pursuant to a separate engagement, before making a commitment to purchase

any of the investment products mentioned. In the event that you choose not to seek advice from a qualified financial adviser, you should

consider whether the investment product is suitable for you before proceeding to invest and we do not offer advice in this regard unless

mandated to do so by way of a separate engagement.

You are advised to read the Conditions governing Phillip Securities Trading Accounts and the Risk Disclosure Statement carefully before

investing in this product.

Phillip securities market outlook seminar market technical outlook

Economy & Finance

Transcript of Phillip securities market outlook seminar market technical outlook