Rising trend toward late October resistance

Rising trend toward late October resistance
Bangkok Post (15 October 2007)

Bank index provides the clearest clue, while performance of ATC and RRC at key barriers will also signal whether rise can continueExactly as we noted in the last review on Oct 1, the long-term cycle indicates a rising zigzag until February 2008, yet there may be important correction along the way. This may happen when we go up to the late October or mid-November resistance. The SET is about to test the previous high at 896, which is both an important psychological and an important technical barrier, but the odds that the SET should go above 896 and continue rising until late October are good. On that note, the SET50 already began to breach the similar resistance last week. As for the stop-loss line, this would be when the SET falls below 862, along with the SET50 falling below 630, during trading hours. In such a case, cancel the scenario of the rising trend toward late October. And also do a pre-emptive cutback, when the ratio of the SET divided by the S&P reaches 0.596. The target for the SET by late October is not very clear, but could be around 977. The possible targets for the SET banking index, however, are relatively clear and can be used to help gauge the market's upside. The targets for the bank index by late October should be either close to 320 or 337, which are respectively 3.63% and 9% up from last week; and, it is more likely to be the latter. Also watch the major resistance against the P/E of the bank sector at 17.20 (the symbol is PEbank, in Bisnews). Other sectors, aside from banking, are also important, but their indices do not show the clear targets at this point. However, on looking at the oil sector, we may expect TOP, as an indicator, to test the previous high at 95.50, and it may go above that. In any case, if the SET energy index can go above this week's critical resistance at 22,629-22,829, the upside for the sector should be quite significant by late October, or beyond. Updating two stocks, which are among the indicator stocks that can be used to help gauge the market's trend, namely ATC and RRC, on which we were bullish but which have experienced corrections, there is no stop-loss signal yet. The stop-loss signal for ATC is on closing below 71 (adjusted from 71.50), and the stop-loss signal for RRC is on closing below 22.40. If simultaneous stop-loss signals occur in both ATC and RRC, it would be a negative warning that the SET may not continue up until late October. In such a case, cut back on the overall and diversified exposure, and go back to the sidelines for awhile. The odds, however, are that ATC and RRC will go up to test the barriers at 80 and 26.50, and the breakouts above those levels will constitute a very positive signal for the market. Other indicator stocks are still looking positive at this point. In particular, BBL should head up to test the 133 or the 137 resistance, which are the key resistances, and which are respectively 6.40% and 9.6% up from last week's closing. Note, however, that around 137 is a dangerous resistance zone, especially if BBL hovers around that zone in late October. Overall, the late October and mid-November resistances are not impasses, but can be seen as a crossroads, and will have to be updated when we get there. Let us now go to the charts behind some of the above scenarios. Chart A shows the bullish potential of the market which extends until February 2008. And, this is consistent with the likelihood that the major foreign selling may not come until late November or until mid-March, as shown in chart B. However, we have to be careful of the possible corrections along the way. And, based on charts C and D, a correction may occur after we hit the late October or the mid-November resistance. If there were to be such a correction, the SET could fall by 100 points or more, until we hit the support around mid-December. The December cycle support is based on the cycle in world oil prices.
That means that if there were to be a correction down to mid-December, we may expect another rebound back up to the February high, but the interim drawdown until mid-December could be significant. That should also answer the question concerning the Dec 23 political calendar in Thailand. That is, no matter what the outcome on the Dec 23 general election could be, the SET should go up, backed by the strength of the oil price, which should come in mid-December. As to how high the market will go by February 2008, this can be gauged from the P/E. If the SET's P/E can go above the 12.73 level, along with the P/E of the bank sector going above 17.20, the upside by February could be astronomical, based on charts E and F. In the big picture, and given the current bullish odds until late October or February, notice also that the SET is currently stronger than the combined gold and oil prices, as shown in chart G. Anant Tantuvanich and Pattarawan Vangmingmart are with the Market Timing Department at Kasikorn Securities.