A rebound or something more lasting?

A reader, CT, posed some questions in response to my post yesterday:

"i was wondering why u would reduce ur exposure at this point in Goldenagri and STI. do u think that there will be another correction soon? or are u just afraid of high volatility? could u expand ur thoughts on that? i ask because it seems to me that after this correction, the entire mkt seems poised for a steady uptick."

The STI broke the uptrend channel's support on 5 Feb before re-joining the channel on 9 Feb.  Of note is that the support broke on very high volume while rejoining the channel took place on relatively lower volume.  This is more bearish than bullish.  Incidentally, the support broke on the same day that the declining 20dMA formed a dead cross with the 50dMA.  The declining 20dMA seems poised to form another dead cross, this time with the 100dMA.  The 50dMA has stopped rising and is drifting lower.  The 200dMA is still rising strongly and should provide a stronger support at about 2600 points.  All these do not mean that the STI is going to crash to the 200dMA but it does indicate more weakness.

In the near term, the MFI is rising and this indicates positive buying momentum.  The MACD has risen above the signal line which is a positive as well.  There is probably some room to move up as the MFI is far from being overbought.  However, keep an eye on volume as without any meaningful expansion in trading volume, the upmove in the STI is likely to be no more than a technical rebound.

Yesterday, while chatting with LP in his blog, Bully the Bear, he mentioned that he is vested in SGX.  I took a quick look at the chart as I was curious and saw SGX clearly in a downtrending channel.  In such a situation, the probability of a counter forming lower highs and lower lows is higher.  It would be prudent to reduce exposure if the price moves to retest the channel resistance.  I mention this as a quick reminder becaue if the charts of counters you are vested in show a similar trending, you might want take this into consideration.

As for Golden Agriculture, I am just doing what I have always done.  As price moves up, I divest gradually at every resistance level.  I hedge against the risk of any sudden reversal in such an instance but I will also never maximise my returns.  Given that the market usually lapses into a stupor after the Chinese New Year period, I am not optimistic that the recent high of 65.5c could be bested.  If you look at the chart, 62c was a resistance level in August 2008 which sealed the fate of this counter as the price plunged after that.  That it was punctured for a couple of days last month in January was a positive but it happened too soon.  59c is a many times tested resistance in recent memory and is psychologically more important.  Hence, I have chosen it as a more realistic target price this time round.  The important thing is to make money.  Greed is not a bad thing but beyond a point, it is.

TA cannot predict what will happen for sure in future.  It simply gives us clues and we can choose to be conservative and wait for confirmation before acting or hedge to reduce risk (which could also reduce rewards).  I have a preference for hedging as I am not a pure TA practitioner.