STI to cross 3000 boosted by long-term investors

An email I recd from my broker yesterday:

Between two market scenarios- a drawn out bear market like in 1997-98 and from 2000-early 2003 and a steep short-lived plunge like in mid-2006, odds still favour the latter

It seems that every 10 years the stock market is hit by a crisis ? Black Monday in Oct 1987, Asian financial crisis in 1997-98 and possibly 2007 ? although we have yet to coin a term for the current global market contagion.

As it will take weeks if not few months before we know the true reasons for the meltdown given the current strength of the world economy and corporate fundamentals, we have to surrender to the market?s will that there is something quite wrong in global financial systems.

In the light of the lengthy bull market which took the STI from 1205 in March 2003 to 3316 at end-Feb this year ? the 11.5% plunge to a new 2007 low of 2934 this afternoon, while relatively reasonable in absolute numbers ? 382 points out of 2111 point surge (18.1% loss) - is shocking to the extent that the plunge took place in a such a short time.

But it is in market?s nature that after ascending into uncharted territory for some time that once a major crack appears, it would fall with a thud.

This had happened after the STI went into uncharted orbit for about 3 months in late 1999 only to start its steep descent in Jan 2000. Again last year after taking out the Jan 2000 peak of 2583 in April, the STI was in uncharted waters for about a month before it plunged from 2666 new peak.
This time, the STI which moved above 2666 in Oct last year, has scaled one new peak after another for over 4 months. This is however a shorter time span than in 1993 when the index stayed in record territory for about 10 months after the 1987 and 1990 peaks of 1288/1304 were finally cleared, finally peaking at 2137 in Jan 1994.

The 382 point loss within a week from 3316 to 2934 today is almost the same absolute amount as the 388 point plunge between 2666 peak in May and the 2278 low in June last year.

The STI has come close to the 38.2% retracement mark (2919) of its climb from 2278 to 3316 which almost coincides with the 61.8% payback mark (2914) between the old 2666 peak and 3316.

This 2920 area thus represents a strong support area, which if broken decisively, could lead to a test of the half way mark between 2278 and 3316 ie 2800.

A test of this level means a 15.6% correction, bigger than the mid-2006 fall of 14.6%. The 2006 peak of 2666 would be a very strong support which if tested implies a steep correction of almost 20%.

If the market does not descent into a prolonged bear market like in 1997-98 and 2000-early 2003, the market should bottom out around 2800-2900. However as we had already seen 2934 today which is close to this area, the STI needs to move back quickly to near 3000 and stay well above 2934 this week to give investors confidence that the worst of the selldown is over.  

A bottom around 2800-2850 is not as frightening given that the market had already seen 382 points loss and another 100 point loss spread over a period of some weeks as the market finds its bottom than should be tolerable.

But going all the way back to 2666 would mean another hefty 268 point loss from 2934, which will cause more damage to investor sentiments than 2800-2850.

This look to be a techincal rebounces. Can STI sustain the rebound should be the most worrisome element. If you think of investing and ride on the bandwagon, do "Practice Caution"

I am taking this chance as a technical pullback. It gives me a small window of opportunity to exit my trade now.

Peace to all