SET Index Shifted Focus to Breakout-Retest at 1,572 Level, While a Bearish Divergence Emerged

Witawat (Ed) Wijaranakula, Ph.D.
Fri Feb 3, 2017

Related Ticker: iShares MSCI Thailand Capped ETF (NYSEARCA:THD)

The SET index lost 0.49% for the week, to close on Friday at 1,582.95, after retesting the 1,600 level last week for the first time since February 2015. The index was led to the downside by big cap stocks, including PTT PCL (SET:PTT) and CP All PCL (SET:CPALL), which were down 1.91% and 1.24%, respectively. Thai Airways International PCL (SET:THAI) was down another 1.79%, as the bribery scandal saga at Britain’s Rolls-Royce, which also involves PTT PCL, continues. The big drag in the SET50 was KCE Electronics PCL (SET:KCE) which tumbled 2.72% for the week, as the stock may pull back further to retest the 100 and 90 baht levels.

From a technical viewpoint, computer algorithms decided to take the SET index down to test the 1,572 support level, using the commonly known “Breakout-Retest” strategy. The index should bounce off from there, or else it could head down further to the 1,560 and 1,552 levels, respectively. The bad news is that a bearish divergence in the SET chart has emerged, meaning the index recorded higher highs while the MACD line formed a lower highs pattern.

The Finance Ministry of Thailand said on Monday that the economy is expected to grow 3.6% this year, up from the 3.4% previously projected, citing higher public spending and improved exports, according to the Bangkok Post. The Industry Ministry of Thailand said on Tuesday its manufacturing production index (MPI) in December was up 0.54% from a year earlier, missing a Reuters poll forecast of a 2.50% rise. Last week, Bank of Thailand Governor Veerathai Santiprabhob told Reuters that the central bank was sticking to its forecasts for flat exports this year and GDP growth of 3.2%, the same as in 2016.

The USD/THB exchange rate was down another 0.72% for the week, to close on Friday at 35.02 baht per dollar. The U.S. Dollar index (DXY), a measure of the U.S. dollar value relative to a basket of foreign currencies, closed at 99.84, down another 0.68% for the week, following remarks from Peter Navarro, the head of Mr. Trump’s new National Trade Council, who told the Financial Times on Tuesday that the euro was like an “implicit Deutsche Mark”, whose low valuation gave Germany an advantage over its main trading partners. 

The U.S. dollar didn’t get much support from either the Federal Reserve after the FOMC meeting this week, or the January U.S. nonfarm payrolls report on Friday that came in better than expectations but with many revisions. The spot gold price surged 2.73% for the week, to close at U.S. $1,220.80 per ounce on Friday, along with the Japanese yen, which was up 2.11% against the U.S. dollar.

The yield of Thailand 10-year government bonds inched 0.55% higher for the week, to close at 2.76% on Friday. The yield spread between the Thailand 10-year bond and the benchmark U.S. 10-year Treasury Note, yielding at 2.467% on Friday, widened to 0.293 percentage points.

The WTI crude spot price closed up 1.24% for the week, at $53.83 per barrel on Friday, while the Brent crude spot price gained 2.01% for the week to close at $55.74 per barrel, despite mixed EIA weekly reports. The Brent crude spot price jumped 1.52% to an intraday high of $57.45 per barrel on Thursday after U.S. National Security Advisor Michael Flynn told the press that Washington is putting Tehran "on notice" in response to an Iranian missile test.

Short positions in WTI crude oil futures contracts held by producers or merchants totaled more than 655,171 contracts as of January 31, 2017, a record high, according to data from the U.S. Commodity Futures Trading Commission, or CFTC. The open interest also stands at a record high of 2,181,656 contracts, equivalent to about 2.18 billion barrels of WTI crude oil. Crude oil producers could take short hedge positions to lock in a future selling price to protect against a falling crude oil price. Some banks also require producers to hedge against future price risks as a condition for lending. 

The EIA weekly U.S. oil inventory report on Wednesday showed that domestic crude supplies increased by another 6.5 million barrels to 494.8 million barrels, excluding the Strategic Petroleum Reserve, in the week ending January 27, compared to the S&P Global Platts forecast for a stockpile increase of 2.2 million barrels. The American Petroleum Institute, or API, inventory data on Tuesday showed a U.S. crude inventory build of 5.8 million barrels. 

Separately, the EIA said the weekly U.S. crude oil production declined 46,000 barrels per day, or bpd, for the week ending January 27, to 8.915 million bpd. U.S. crude oil output increased 179,000 bpd to an average 8.942 million bpd in January, compared to a December average of 8.763 million bpd. Output has fallen about 6.85% from the peak level of 9.60 million bpd in June 2015. Houston-based oilfield services company Baker Hughes Inc. said on Friday that the U.S. oil rig count jumped another 17 to 583, compared to 316, when the rig count hit the low on June 6, 2016. 


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