STI Probes Resistance Ahead of Key Earnings Week

With the top three companies accounting for over a third of the STI’s market cap, traders should take note that they are all set to release earnings this week.

DBS has been a strong performer alongside the STI this past 3 months

As noted in our previous report, we think the STI is within a 5th wave of a 19-month impulsive rally. Yet key resistance levels loom nearby, along with the potential for some volatility from its 3-largest constituents. As the STI’s top 3 stocks by market cap account for around 36% of the STI’s weighting, their earnings report will be a key focus this week.

Tomorrow, both OCBC (Oversea-Chinese Banking Corp) and UOB (United Overseas Bank) report earnings, then DBS are on Friday (all before market open).

  • OCBC are expected to report an EPS of 0.26 and revenue of $2.59 billion. Six analysts have a ‘strong buy’ recommendation, ten have a ‘buy’ and 4 have a ‘hold’ according to Reuters.
  • UOB is expected to report an EPS of 0.59 and revenue of $2.46 billion. Four analysts have a ‘strong buy’ recommendation, 14 have a ‘buy recommendation’ and one has a ‘hold’.
  • DBS are expected to report an EPS of 0.6 and revenue of $3.55 billion. 5 analysts have a ‘strong buy’ recommendation’, 10 have a ‘buy’ whilst 4 have a ‘hold’.

 

9 of the top 10 stocks by market cap have risen over the past 3-months

As the top 10 stocks on the STI account for around 70% of the index weighting, it’s good to see 9 of the 10 stocks have traded higher over the past 3-months to support STI’s rally. Jardine Matheson (JARD) and Capital Mall (CAPN) have been top performers with DBS Group (DBS) a close third. Only OCBC traded lower, so the market appears broadly supported overall.

However, which ever way we look at the broader market, its near-term direction will likely be dictated by the ‘big three’ this week, especially if they all exceed or miss expectations by a wide enough margin. And that could be the difference between breaking above key resistance or falling from it.

 

Earnings to drive STI’s next move from (or through) resistance

As for the STI, its rally has stalled just below historical resistance levels, which rarely break upon a first attempt. 3233.86 marks the February 2020 high which was the ‘last hurrah’ before the pandemic’s bear rally took hold, and that key level sits just beneath the April 2021 high. It is therefore safe to assume these levels hold strong memories, so we would not be too surprised to see a correction from current levels.

The STI has paused near historical resistance ahead of key earnings reports from banks

However, before getting too bearish we’d want to see a 3180 to confirm a countertrend move on the daily chart. A break of 3180 then makes 3140 (50-day eMA), 3122 (bullish Marabuzo low) and 3088 (swig low) making viable bearish targets.

If 3180 holds as support, it may tempt ‘dip buyers’ to the table who anticipate a break higher. And taking the long-term bullish trend and strong rally into resistance into account, we do favour an eventual break higher. And volume analysis seems to agree.

 

Volume analysis suggests an eventual break higher

OBV (on balance volume) has confirmed the bullish trend and broken to new highs, which suggests a bullish breakout could materialise

OBV (on balance volume) has confirmed the bullish rally and even broken to new highs ahead of price action, which suggests bulls are accumulating. A strong CNY would also help but, at present, USD/CNY is holding above the key support level of 6.35. So in a nutshell, we favour an eventual upside break but need to see how the near-term direction plays out as to decipher if it will be a small or large retracement ahead of any breakout.

 

How to trade with City Index

You can trade easily trade with City Index by using these four easy steps:

  1. Open an account, or log in if you’re already a customer 

    Open an account in the UK
    Open an account in Australia
    Open an account in Singapore

  2. Search for the company you want to trade in our award-winning platform 
  3. Choose your position and size, and your stop and limit levels 
  4. Place the trade

 

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.