SET Sell-Off May Continue As Technical Indicators Remain Bearish

Witawat (Ed) Wijaranakula, Ph.D.
Fri Mar 10, 2017

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

The SET index tumbled 1.68% for the week, to close on Friday at 1,539.91, after the index was unable to bounce off the 50-day SMA. Foreign investors continued selling on concerns about an interest rate hike at the March 14-15 FOMC meeting. The current probability of a quarter percentage point hike, to the target Federal funds rate of 75 to 100 basis points, is 88.6% as of March 10, up 8.9 percentage points from last Friday, based on CME Group 30-Day Fed Fund futures prices. 

Despite a big plunge in crude oil prices, big cap stocks in the energy sector, including PTT PCL (SET:PTT) and PTT Exploration and Production PCL (SET:PTTEP), still held up relatively well, down 1.52% and 4.05%, respectively for the week. More selling could continue next week as the relative strength index, or RSI, may be heading to the 30 level and the moving average convergence/divergence, or MACD, continues to signal a sell. The index could turn south fast if it breaks the 100-day SMA, or the 1,534 level. 

The USD/THB exchange rate gained 0.83% for the week, to close on Friday at 35.32 baht per dollar, while the Thai baht has appreciated 1.4% year-to-date against the U.S. dollar. The U.S. Dollar index (DXY), essentially the USD/EUR exchange rate, was unable to break through 102.16, or the 61.8% Fibonacci retracement level, for a second time on Thursday and could turn bearish, as a head and shoulders chart pattern has now emerged.

The DXY dropped 0.60% on Friday despite that the U.S. Department of Labor said total nonfarm payrolls increased by 235,000 in February to a total of 145.798 million, compared to a revised 145.563 million in January, exceeding economistsí expectations for 197,000 jobs added. Some traders blamed the falling DXY on ECB president Mario Draghi, after he decided to keep interest rates unchanged on Thursday and commented that he isnít worried about deflation anymore, but still thinks an accommodative monetary policy is needed.

The yield of Thailand 10-year government bonds closed up another 2.91% for the week, at 2.83% on Friday, as investors continued selling Thailand sovereign bonds. The yield spread between the Thailand 10-year bond and the benchmark U.S. 10-year Treasury Note, yielding at 2.575% on Friday, narrowed to 0.255 percentage points. The spot gold price dropped 2.01% for the week, to close at U.S. $1,201.40 per ounce on Friday, while the Japanese yen depreciated another 0.64% against the U.S. dollar. 

The WTI crude spot price tumbled 9.08% for the week, closing at $48.49 per barrel on Friday, while the Brent crude spot price plunged 6.87% for the week to close at $51.28 per barrel, after the WTI crude price broke down through the key 50-day SMA on Wednesday, triggering a cascade sell-off. Speculative long positions in WTI crude oil futures contracts held by money managers totaled 418,346 contracts as of March 7, 2017, a decline of 10,822 contracts, according to data from the U.S. Commodity Futures Trading Commission, or CFTC. Traders and analysts blamed the sell-off on the EIA weekly U.S. oil inventory report, showing the inventory at a record level for the fourth-straight week.

The EIA weekly U.S. oil inventory report on Wednesday showed that domestic crude supplies increased by another 8.21 million barrels to an all-time high of 528.39 million barrels, excluding the Strategic Petroleum Reserve, in the week ending March 3, compared to the S&P Global Platts forecast for a stockpile increase of 1.6 million barrels. The American Petroleum Institute, or API, inventory data on Tuesday showed a U.S. crude inventory increase of 11.6 million barrels. 

Separately, the EIA said the weekly U.S. crude oil production increased 56,000 barrels per day, or bpd, for the week ending March 3, to 9.088 million bpd. U.S. crude oil output increased 28,000 bpd to an average of 9.025 million bpd in March, compared to a February average of 8.997 million bpd. Output has fallen about 6% 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 rose another 8 to 617, compared to 316, when the rig count hit the low on June 6, 2016.


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