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Cyclicals recover, setting upside targets

The Edge Singapore
The Edge Singapore  • 3 min read
Cyclicals recover, setting upside targets
Cyclical blue chips Keppel Corp, City Developments and CapitaLand are in the process of, or have broken above base formations.
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Cyclical blue chips that are components of the Straits Times Index continue to push higher following months in the doldrums.

Keppel Corp closed at $5.15 on Nov 20, near an upside target following the break out of its base formation at $4.60. While short term indicators are approaching the top end of their range, with stochastics poised to flatten and turn down, and 21-day RSI at just short of 70, its highest level more than a year, it is possible that prices consolidate their recent gains. Since quarterly momentum has broken above its own resistance and its equilibrium line, and is likely to rise further, the consolidation is likely to be modest, with support at $4.92. A subsequent move above $5.15 would take prices towards $6, the level just before prices tumbled in August.

Technically, City Developments — which closed at $7.75 on Nov 20 — has recovered to the top of what could be a base formation at the confluence of a resistance at $7.89, and its 100-day moving average at $7.82. Prices have moved up by $1.55 since the low of $6.20 on Nov 2. However, quarterly momentum is testing a thrice tested resistance level that coincides with its equilibrium line. A breakout should materialise in due course. If so, this counter is likely to break out of its base setting an upside of $8.44. Any retreat in the week of Nov 23–27 is likely to be relatively benign, with support at $7.45.

See: Impacted by Covid-19, City Developments Limited focused on long-term: analysts

See also: Straits Times Index shows short-term weakness, US risk-free rates shows downward bias

CapitaLand ($3.05) has shown greater relative strength compared to the rest of the developers. It has broken above its 200-day moving average, currently at $2.93. Its 50- and 100-day moving averages appear poised for a positive cross. Volume continues to expand on white candle days, and quarterly momentum continues to strengthen. Its immediate resistance is at $3.23. A successful break above $3.23 would provide the impetus for prices to test $3.50.

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As a result, the STI, now at 2,813, should continue to make headway. First though, it may pause for a much-needed consolidation. As the index approaches 2,891, the bottom of a breakaway gap, and an area that coincided with increased selling back in March, resistance is likely to appear. On the other hand, the 50- and 100-day moving averages appear poised for a positive cross, and quarterly momentum remains strong. These different pressures are likely to lend themselves to a sideways consolidation, with the 200-day moving average now providing support at 2,632.

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