By Gabriel Gan

Speaking on SPH Radio 96.3FM on 6 June, I mentioned about the key technical levels that the Dow Jones Industrial Average (DJIA) and the Straits Times Index need to clear before we can see the indices move higher.

The DJIA has staged a recovery in late-May to early-June after briefly touching 25,000 points in mid-May. We have not seen the DJIA trade above 25,000 since mid-March, and three previous attempts to clear 25,000 have been futile. It looks likely that 25,000 will be crossed sooner rather than later as several key fundamental reasons support a rally in the second half.

Source: BigCharts from MarketWatch

Economists are now projecting the US gross domestic product (GDP) to grow by an average of 3.3% while the Atlanta Fed is targeting a sizzling 4.8% in the second quarter! Such projections are typically matched by a rise in employment as well as income levels, but income has not gone up as much as the increase in employment hence the fear of inflation rearing its ugly head has been put to rest. For the time being, at the very best.

The first half of 2018 is coming to an end and the Fed has shown no signs that it would raise the Fed fund rate more than the targeted three times. This will support further rallies in the stock market.

In addition, US corporate profit growth in the first quarter jumped by 24.9% and is projected to rise by some 18% in the second quarter. We add this piece of good news – growing profits but stagnant stock market – with reports that US companies will buy back shares amounting to US$200 billion, we should get a rally in the second half.

As for the Straits Times Index, we should also see a nice rally here at the local bourse if the US stock market was to rise. Expect the first resistance at 3,500 for the STI followed by the next one at 3,700 points. Once 3,700 is taken out, we can expect the STI to test the historical high of 3,900 by the end of this year.

Gabriel Gan was a Senior Vice President at AmFraser Securities. He left to join DMG Securities (now renamed as RHB Securities) to take on a similar role. During his stints at the stockbroking firms, he dealt in equities, performed advisory role and executed corporate finance deals for his clients.

Since 2001, he has been invited by the media (both Mediacorp and SPH) for his stock market opinions. On radiohe spoke on 95.8FM for more than a decade; he now speaks every Wednesday and Thursday mornings on SPH radio 96.3 FM, delivering his opinion in Mandarin. On TV, Gabriel appeared on Channel NewAsiathe former Channel U and various Channel 8 financial segments including Good Morning Singapore, Hello Singapore and MoneyWeek. On print media, he continues to give quotes and comments on the economy and stock market for Lianhe Zaobao, Lianhe Wanbao and Shinmin Daily. On top of that, Gabriel was a columnist for the now defunct My Paper.

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