On Jan 27, the Chicago Board Options Exchange Volatility Index (VIX) shot up to 37, its highest level since 40, which it attained at the end of October last year. The volatility in the US markets was triggered by a surge in the price of American video game retailer GameStop.
As a result, hedge funds that bet against the stock had to close their positions. Retail investors on online platform Reddit — and spurred on by Elon Musk, the major shareholder of Tesla — got together to shore up GameStop’s price.
It is uncertain where this ends as market watchers attempt to divine if hedge funds — which held short positions in GameStop — are negatively affected. If hedge funds used options strategies to limit losses in their short-selling, then the downside is likely to be limited. That would mean that markets could resume some form of a rally next month.
For the time being, the ensuing volatility on Wall Street has rippled across the Pacific Ocean to Asian markets. Our own Straits Times Index has fallen below a minor support at 2,977. The next level of support is at the low end of a range at 2,795.
Watch for further short term weakness as the 21-day RSI has formed a negative divergence with price and is retreating. This coupled with the downturn of short term stochastics, could cause the retreat to persist.
The STI’s 50-day moving average is at 2,881, and was rising at around five points a day. This is likely to slow down to around three points a day, following the STI’s own retreat, with the index currently at 2,920 as at Jan 28. If the index falls towards its support at 2,795, that would take prices below the 50-day moving average, signaling danger for the component stocks. On the upside, the roundophilic 3,000 level continues to provide a psychological barrier.
The local market’s bellwether stock, DBS Group Holdings, has fallen below its 50-day moving average at $25.59. Quarterly momentum has also broken below its own 50-day moving average. DBS’s immediate support is at the $25.30 to $25.40 range, a former resistance area. This is not a strong support and could be punctured on a sharp sell-off. The stock’s closing high this year was $27.42 and this was also the one-year high. It could be weeks, perhaps months before prices are able to move towards this level. Whither DBS goes, there goes the local market. DBS closed at $25.44 on Jan 28.
ARA LOGOS Logistics Trust (ALOG) is up 18% since Jan 4 this year. Technically, prices moved out of a multi-month consolidation range, with a breakout at 64 cents. This break was accompanied by a significant increase in volume. More significantly, the stock also broke out of an eight year downtrend at the same time. Immediate resistance is at 73 cents, a range at which prices were trading for much of 2019, and before the sharp decline seen last year. Support is at the breakout level. The breakout indicates an upside price target, but the area around 73 cents needs to be cleared first.
With the broad market likely to languish as volatility engulfs global markets in the near term, breaking out of 73 cents could be challenging
