OCBC March 6, 2007

Straits Times Index

What goes up must come down....

- In a single session, the STI has broken through our suppor zone, shedding over 96.45 points yesterday. The last 5 trading sessions have resulted in the STI breaching the 50 and 100-day moving averages, which translate to a high probability of more downside ahead.

- Given the oversold signals shown by the near-term price indicators, we can expect a lot of volatility over the next 5 - 10 trading days as the STI will attempts to stage a technical rebound before it resumes its down-trend.

- Elliot wave counts indicate that the benchmark is currently undergoing a corrective wave ( Wave 4 ) within a 5-wave up-cycle, which began in June 06.

- Quantitative analysis has revealed a behavioral trend in the index during its correctional phases, which sopports our forecast of a further downside for the STI in the weeks ahead.

- Using the degreee of losses sustained by the STI during every significant correction from 181 to date, we noticed a pattern that occured in 13 out of 15 such corrections ( 86% historical occurrance ). We broke our measurements into 2 parts, the 1st part that was the 1st phase of the correction which was followed by a mild rebound and the 2nd part that correction which was followed by a mild rebound and the 2nd part that measured the completed correction.

- Every correction that suffered a loss ranging around 9 - 11% within the 1st phase of the sell down, the index would resume its plunge after a muted attempt to recover. The final phase of the correction would result in a loss of over 18% from its peak. However, where the index chalked up a loss of less than 9-11% within its 1st phase, the STI recovered strongly and continued its rally. This occurred in Jan 04 and Aug 05. The only 3 exceptions out of the 13 occurrences were in Aug 88, July 99 and May 06, where the index suffered a pullback of just 15%, despite crossing the 9-11% mark in the 1st phase of the sell down.

- As of yesterday's closing, the STI has lost approximately 10% from its peak at 2,216.22. Heence a conservative measurement forecasting a 15% loss from its peak would place the STI close to 2,800. Thus we set a support zone at 2,700 - 2800. Resistance set at 3,100.