Cash Is King !

After the US regulator surprised market with the rate cut, Chinese regulator gave a better surprise on Monday by announcing that mainland individuals can buy Hong Kong shares under a new scheme to be implemented in Tianjin’s Binhai New Area, now considered the country’s third special economic zone after Pudong and Shenzhen.

The State Administration for Foreign Exchange (SFE) – the official regulator of capital inflows and outflows – said those investing overseas must open an account with the Bank of China’s Tianjin branch and transact through the bank’s brokerage in Hong Kong, BOCI. This means only Hong Kong stocks are available for investment at the moment.

The liberalization move could possibly help to lessen upward pressures on the Rmb, narrow the widening gap between A and H shares and provide some stability to Hong Kong’s volatile market as international funds pull money out of Hong Kong to cover fund redemptions lately.

The announcement by SFE said investors would not be subject to the US$50,000 cap on foreign exchange outflows for individuals. Assuming that 1% of the personal savings of about US$2.2trillion flow to Hong Kong stock market in the next 12 months, we are looking at an eye-popping US$20b.

The irony of the back to back announcements…….US government lowering rate to lessen the burden of people who are heavily in debt while Chinese government "had" to open the door for fund to flow out since they have too much money!!

STI : Short term positive, Medium term still negative

STI 3100 support level that I highlighted as the 15% correction from recent high was tested last Friday and successfully defended.

We have seen the market rebounded strongly today, to pull away from 3100, meaning that 3100 should be a short term good support level.
STI closed 3322 today, which is exactly 50% retracement from 3688 to Friday low of 2962. Near term resistance could be the 61.8% Fibonacci retracement level about 3410, this will coincide with the 8th aug rebound day high of 3416, making it a stronger resistance for the near term.

There is a good chance that index will try to touch the 61.8% retracement level as we are seeing more short term positive indicators :
1.Parabolic SAR trending indicator turned positive today for the first time after being in negative zone for 16 days
2.Stochastics have formed higher lows and just cut up today, near term upside is likely with such signals
3.MACD histogram formed higher lows indicating that the selling pressure have eased for the near term

Two other trending indicators are still negative :
1.MACD still negative - this is a lagging indicator, more for medium term signal
2.Multiple moving averages - this is also a lagging indicator, more for medium term signal

In summary :
What we are seeing now is that SHORT TERM signals have turned positive but medium term signals are still negative. All these possibly mean that STI could have stopped the downward slide for the near term and could move sideway or upward in the near term.

We are not out of the woods yet since medium term signals are still negative. If you are short term traders, enjoy the fiesta while it last ;)