SMRT limited downside

SMRT, one of new inclusions into the STI basket from 23 March 2009, is also one of the more defensive stocks, and should remain resilient in the medium term even if the overall market continues to underperform. In the short-term, we are still looking for opportunities to buy in on any dips that may occur.

SMRT has shown itself to be a very defensive stock in this current economic crisis – the stock has only suffered a 20% erosion in value as compared to the near-60% loss suffered by the Straits Times Index (STI) since its all time high in Oct ‘07.

In addition, we note that SMRT has managed to maintain its 5-year uptrend line since its all-time low in 2003, despite the general market’s dismal performance over the same period.

Near Term Outlook; Range trading likely

- As the overall market is currently undergoing a technical rebound (which we expect to persist for a while more), more defensive stocks like SMRT may be discarded in favour of more speculative counters.

- Both the price action (candlesticks) and short-term indicators point to more downside bias as well.

- But the inclusion of SMRT as an STI component stock is likely to limit the downside risk.

- As such, we expect the counter to find strong support level at $1.55 (6.5-month downtrend-turned-support line and also recent troughs) before rebounding to test the 100-day MA and upper Bollinger band again at around $1.63.

Medium Term Outlook; Well supported levels with limited downside

- The recent rebounds off the $1.55 level seem to illustrate that it is a strong medium-term support as well.

- Meanwhile, the technical indicators also underline the positive medium-term view.

- The OBV indicator is still on a 5-month uptrend; the MACD indicator tends to cut back up just below the centre line; the RSI also tends to turn up soon after it reaches the oversold level.

- Although SMRT has failed to recapture the 4.5-month uptrend-turned-resistance line recently, we believe that the medium-term downside remains limited as long as the general market continues to underperform.

Support / Resistance Levels

- Should the immediate support at $1.55 (recent lows) be breached, we expect the medium-term support level to hold at $1.42 (Oct ’08 low).

- Any further upside from the $1.63 level will likely meet heavier resistance at $1.67 (Feb ’09 high and 6-month downtrend line), followed by $1.79 (Dec ’08 high).

- The strongest topside cap is likely at S$2.00.

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