Jay's expectations for Straits Times Index in 2018

Jay's expectations for Straits Times Index in 2018
Jay's expectations for Straits Times Index in 2018

Happy 2018 everyone! Year of 2017 turned out eventful for many as the Straits Times Index managed to end the year with a whopping 18.13% of gain. This gain was achieved when everyone was concerned on the newly minted President Trump’s policy changes to missiles and nuclear testing by the North Koreans. Before 2017, many expected the year to be of challenges which leads to advices on cautiousness. Looking back, if one is to hold back due to these concerns, you will have missed the opportunities that happened in 2017.

I can hear people asking why the market is not trading based on the expectation. I will attempt to share my personal opinion on this matter. I always believe that market movement will usually move in tandem with the fundamental conditions. Since 2016, I have already noticed that the market fundamental valuations have been on the low side; Valuations that can only be seen when the market is trading near to historical lows. So when STI starts to break out of 2016 range, I am confident that a new sustainable uptrend movement will be formed.

The bullish strength of Straits Times Index is largely contributed by the banking sector. During the start of the year, people are still sceptical of whether the banks are able to manage the debt crisis that had imploded during 2016. As the earnings reported by the banks starts to show otherwise, people started to gain confident which resulted in strong price surge in this sector. Due to this confidence, other sectors in the market also gain bullish traction. Another sector grew strongly is the manufacturing sector. During the year, Singapore economic reports show strong growth in the manufacturing sector. Prices of companies that are involved in this sector soared during the year. So it is clear that STI had been trading on the firm foundation.

With 2018 starting, many started to post the familiar and usual question to me: “Jay, what do you think about next year?” From the chart, it is very clear that STI is currently trading uptrend and I certainly do believe that it can continue to do so. However, for every uptrend to be more sustainable, a consolidation movement, either by sideways or downtrend movement, should happen. In year 2017, I have expected and waited for a downtrend movement to happen. Instead, STI chose to consolidate by forming a sideways movement from May to Oct last year. I believe that many people are frustrated that market correction did not happen last year; this includes me. This kind of frustration can lead to unwise investment decision. Eager investors or traders will more likely to rush into the market whenever the market starts to drop a little; hence, boosting the index to go higher. I believe that such sentiment will happen from 1st quarter to 1st half of the year before I start to behave cautiously.

To keep me away from being too optimistic, it is important for me to identify the sustainability of the bullishness using the data from the fundamental valuation. I believe that there will be a point in time that the valuation will reach a level that is worthy for me to keep away from the market. I am expecting a market correction to happen. Based on the Elliot Wave theory, an uptrend wave can consist of a sideways consolidation and a downtrend consolidation. Now that I have seen the sideways consolidation happening in 2016, I will now be expecting a downtrend consolidation to happen.

My strategy for this year will be clear. Riding the uptrend movement but taking profits on the way up. Attempting to increase my cash exposure as fundamental valuations starts to get high; this is necessary so that when correction happens, I will have the funds to capture stocks that are not trading at the right valuations.

*Note: There are a lot of more detailed explainations on why I derive my expectations. I have decided to leave out details so as to make reading easier.

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