Phillip Securities Research - Phillip CFD

Technical Analysis 16 October 2008
STI Weekly, Decline from February 1997
(3)
(4)
50 MA
Source: Bloomberg, Phillip Securities Research
The other 2 incidences occurred during the decline coming off from the Asian Crisis
in 1997. Again we see a close outside 2.5 standard deviations for incidence “(3)” and
“(4)” along with deeply oversold RSI conditions as well. Please draw your attention to
what happened after in these cases. In incident “(3)” during October 1997, prices
rallied off from the low and drifted sideways before declining. For incident “(4)” in
January 1998 there was a run up for a month followed by a consolidation before the
decline continued all the way down to the 800 level.
Duration of Decline
The duration the market has been declining is a key factor in determining whether the
market will rally strongly in the light of oversold conditions. To use an extreme
example for the sake of illustration, it is impossible for a bear market like the current
one, driven by a credit crisis and deleveraging of unprecedented scale to end in a
very short period of time, E.G.: 3 months from the October 2007 high. Time is
required for the excess that worked its way into the market since 2003 to be ironed
out and investor sentiment to change. In our Q4 Strategy Outlook, we made the
observation that the minimum duration of decline from crisis situations is at least 19
months.
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