Market Update 3 October 2016 October 3, 2016

Straits Times Index (STI)

STI closed 13 points marginally higher to 2869 last week. It has been trading in a range between the 2800 to 2900 zone for 9 weeks in a row. Nevertheless, STI managed to close 29 points higher for the quarter, compared to a closing of 2840 on 30th of June. This was due to the event of window dressing on last Friday, which was also the last trading day of Q3.

Despite the positive catalyst by the oil producer cartel last week, this event failed to boost STI higher to test the resistance of 2900. OPEC has sealed a deal to freeze oil production at 32 million barrels per day. STI volume has been low, trading lower than 50-day volume moving average since August. From a Technical Analysis’ perspective, if there are no other catalysts in the market in the short term, the STI will build a stronger support at 2800 and a stronger resistance at 2900.

Bollinger Bands of STI weekly chart has signaled a building of Bollinger squeeze. Do take note of a potential breakout in either direction. It is usually coupled with a day high volume and low RSI below 30%.

Beginning of the new quarter, also the final quarter of 2016, marks the beginning of the earnings season by listed companies. Investors should take note and look out for the signals projecting where the market is heading for the year 2017.

Major events to take note in Q4 2016:

  1. US Presidential Election
  2. US FED rate hike decision
  3. OPEC meeting to release details of production freeze
  4. Pro-Brexit policy change by UK and Eurozone

OPEC’s Oil Deal

On Thursday morning (Singapore time), OPEC surprised the market by an agreement to successfully seal a deal of oil production freeze. They have agreed to reduce the oil production cap to 32.5 million barrels per day. This outcome was different from the one in April where OPEC members and Russia met in Doha but failed to agree on a freeze production. Saudi Arabia scuttled that plan when Iran refused to participate.

Currently, OPEC production is 33.5m barrels, which is 1 million barrels lower than the current daily production volume according to their latest announcement. Looking at the figures, I believe this is a rather conservative decision. The details of the production agreement will only be released in November when they meet again at Vienna, Austria, with no official statement by Iran yet. Thus in my personal opinion, we are expecting to see more volatility with regards to oil price and a daily production of greater than 34 million barrels per day till end of November, prior to the detailed agreement. Investors can watch the Oil & Gas sector as well as some listed ETF which track the oil price performance, such as United States Oil Fund (USO) and ProShares Ultra Bloomberg Crude (UCO).

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About the author

Ng Aik Hong
Dealing Manager
Bukit Batok Dealing Team

Aik Hong is a Dealing Manager for POEMS Dealing (Bukit Batok), and currently provides dealing services to over 20,000 trading accounts. He is regularly invited to share market insights on Channel 8 “Morning Express”. He is also frequently interviewed by MediaCorp 938Live and Capital 958 radios as a market commenter. Aik Hong holds a Bachelor Degree of Mechanical Engineering, from Nanyang Technological University (NTU), Singapore.