STI just formed a Death Cross. More Downside or a Reversal is Imminent?

The recent trade spat between US against China has just turned official. In addition to that, the rising of the interest rates, the exodus of funds from Asia and the Singapore property cooling measures announced last Thursday all work to send the Singapore stock market in a downward spiral. And on Friday, the Straits Times Index just formed the death cross, which many see it as an indication that there is good chance that a bear market will occur. And if you have not realized, we are now officially in the correction territory.

If you have been following my system, you would know that since the beginning of the year, the system has been giving out caution outlook for Singapore market and advised followers to scale down their portfolio and keep more proportion in cash. (Back then the outlook was shared freely via some of the social media platforms which now is only available to subscribers). The system market outlook is partly based on analyzing the proportion of uptrending stocks in the market. The strategy was explained in one of my post back in late January and was intended to warn of the high risk of correction in the US market (which as usual impacted SG market too).

The post is titled: Why am I so concerned with the Proportion of Uptrending Stocks in a Market?  
Here is another subsequent post that explained "How my system predicted the recent downturn?" which a few days after the warning, Renaissance Technologies Hedge Fund mentioned the same thing!

The reason I highlighted all these posts is not to brag but to show you the effectiveness of the system to anticipate market movements and catch reversal based on the proportion of uptrending stocks in a market plus the Pareto principle of the 80/20 rule (which is the law of the vital few). This is crucial in trading because it is very hard to profit if one is trading in the opposite direction of the overall market. (Follow the path of least resistance, remember?)

Ok, so what is the analysis saying about the current Singapore market?

Singapore stock market has not been doing well generally since the beginning of the year as cautioned by the system. The rise in March and April 2018 is mostly propelled by one sector - the banks - in anticipation of rising interest rates, which spells trouble. The proportion of uptrending stocks has been falling since the start of the year until now. It may continue to fall for some time and it would bring the STI and overall market down with it. However, the lower this value goes, the higher the probability of reversal (remember the Pareto principle?).

Now this value is in the region of 30% and still decreasing. The system is waiting for the proportion to start to increase before going aggresive. By then, STI may still be declining or already reversed ahead of the proportion but as long as the increase in proportion of uptrending stocks is not confirmed, the probability of further market decline or whipsaw is high. For now, the system will maintain overweight in cash.

Why I started live trading the system in June 2016?

The reason I picked June 2016 to start trading my system live was also based on this analysis. This is the time where the oil crisis has ended and the US and SG stock markets started to recover. It is during this time that the proportion value dropped to near 20% and started to reverse upwards.

It turned out to be one awesome bull market and the system's portfolios profited handsomely during this period.

This article is based on my system's analysis and my own opinion of the outcome. This does not constitute an investment advice and readers should perform own due diligence when making investment decisions.

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