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The SET plunged 4.73% and broke through the key technical support at 1,313, to close at 1,301.06 on Monday, following China's benchmark Shanghai Stock Exchange Composite index 8.46% meltdown. It got started when the Shanghai Stock Exchange took a nosedive right at the opening on Monday. China's neophyte individual investors speculated that domestic pension funds would step in and buy into the market at a low entry point but started panic selling after no state pension funds showed up to support the market.
The China equity market rout continued Tuesday, sending the SET down below the key technical support at 1,296. The SET managed to bounce off the trendline support to close at 1,323.88, up 1.75% for the day.
The SET took a cue from Wednesday's U.S. equity market rally and ran up 2.87% to close at 1,358.03 on Thursday, after Federal Reserve Bank of New York President William C. Dudley, said, “From my perspective, at this moment, the decision to begin the normalization process at the September FOMC meeting seems less compelling to me than it was a few weeks ago,”. Dudley is the second Federal Reserve official to break the silence on a rate hike since the global market crash began.
According to recent data compiled by Bloomberg, futures traders are betting the Federal Reserve will push back a rate hike and the odds of an increase in September have fallen to 26%, down from 40% when the survey was done at the end of July.
Separately, the People's Bank of China (PBoC) cut benchmark rates by 25 basis points and reduced the reserve requirement ratio (RRR) by 50 basis points. The PBoC’s announcement didn’t stem panic selling from China's neophyte individual investors though, as the Shanghai Composite index still fell 1.27% on Wednesday.
The SET trading volume on Thursday and Friday was not heavy as Thai individual and foreign investors were selling into the rally. Some investors may not have enough confidence that the rally is sustainable. The Thai individual investors’ net sells were about 7.3 billion baht while the foreign investors’ net sells were about 2.9 billion baht on both Thursday and Friday. The year-to-date foreign investors’ net sells now top 86.8 billion baht, up 249% from the same period last year.
For the week, the SET closed at 1,365.94, up 0.33 points. The shares of PTT, one of the top constituents of the SET, got a major boost from the nearly 20% run-up in crude oil prices for the week from Monday's low, after Venezuela asked OPEC on Thursday for an emergency meeting about oil prices. The support of crude oil prices could also have come from Mexico’s government, as it spent U.S. $1.06 billion for put options to hedge oil exports for next year at an average of U.S. $49 a barrel. CP Foods also said this week that it would spend up to 10 billion baht to buy back its shares.
Technically, the SET might have hit a tradable bottom at 1,292.14 on Tuesday, as the index closed at 1,323.88, above the key technical resistance at 1,313. The descending wedge chart pattern is now emerging while the SET continues moving in a lower high (L-H) chart pattern, meaning every high is lower than the previous high while every low is lower than the previous low. This lower high chart pattern signals a continuous bearish downtrend, unless the SET breaks out the descending wedge.
In a downtrend, all three major moving averages, 50-, 100- and 200-day SMA, are major head resistances, so one should pay close attention to political or financial events when prices approach these moving averages. Trading in this environment will also be volatile near the support and resistance levels. The Relative Strength Index (RSI) and the Moving Average Convergence/Divergence oscillator (MACD) are 41.88 and –30.072, respectively, meaning the SET is no longer oversold.
The headline risks for next week are the U.S. non-farm payrolls report and China’s stock market. The U.S. Bureau of Labor Statistics will release the jobs report on Friday, September 4, 12:30 PM GMT. The market is expecting a 220K jobs gain. The Shanghai composite index, which closed on Friday at 3,232.35, could be heading back south if the index is unable to break through the 3,400 resistance level. If the Shanghai composite index goes, so goes the SET. |
