Monday, May 2, 2016

How the STI may Perform in May 2016

The STI had ended April flat at 2838.52.   To be precise, it was down by 2.38 points.

Let's now take a look at how the STI may perform this May.


2 methods will be used to predict the performance of the STI in May.   They are the monthly effect and the momentum effect methods.

In the monthly effect method, you look at the performances of the index in the same month during the past years for clues.   If the index often behaved in a particular way in the same month previously, then it might behave the same way again in the same month this year.

In the momentum effect method, you look at the performances of the index in one or more immediately preceding months of the current, check for similar occurrences in the past years and look at their immediately following months' performances for possible directions.

The results obtained from the 2 methods are then used to establish the probable performance of the index for the current month.


The table below shows the month-on-month performances of the STI for the months of March, April and May in the last 20 years as well as those of March and April in 2016.


Monthly effect

If you look at the data in the 'May' column in the table for the period from 2006 through 2015, you will see that the STI was down 6 times out of those 10 years.   Similarly, if you look at all the data in the whole in the 'May' column, you will also see that the STI made a loss 12 times out of 20.  

Thus, in both the last 10 and the last 20 years, you have the STI down 3 times out of 5 in the month of May.   This shows just how likely it is for the STI to go down in May.   The chances are consistent and have not changed between the last decade and the decade before that.  

Now, let's take a look at the times the STI posted a massive drop in May.  

You can see that there are 5 times in which the STI had dropped by more than 200 points in May.   They happened in the years 1998, 2000, 2006, 2010 and 2012.  

In case you have missed seeing it, take a look at the numbers of those years again.   Did you notice that all of them are even numbers?  

What do you have now?   This year is 2016.   It is also an even number.   So, you may have the STI making a huge drop this May!  

Since, in 20 years, you have 10 even-numbered years, the chances of a massive drop in the STI happening in an even-numbered year is 1 out of 2.   That means that the chances of this event happening or not happening this year are just the same.

The STI looks to have a good chance of going south this May and could even go down by as much as 200 plus points.

Momentum effect

In April this year, the STI had ended flat.   This was the only time in the past 20 years in which the index had ended flat in April.  

There were other years previously in which the change in April was small, but it had never been as small as this year.   In fact, in the whole of the past 20 years, there were only a total of 6 times in which the monthly change in the STI was less than 2.5 points.

Looking at the STI's performance in March, it had a gain of a massive 174.3 points.   However, it registered a small loss in April.   There was, thus, a swing from a substantial gain in one month to a loss in the next.   The upward momentum in March was not only diminished and extinguished, its direction was also reversed.   Such an enormous swing from one direction to the exact opposite direction indicates the fingerprints of some mighty forces.

Hence, let's take a closer look at this phenomenal behaviour.

In the table above, each row of cyan-green-coloured boxes highlights an occurrence of the STI switching from a gain in March to a loss in April.   There were 4 such occurrences in the past 20 years.

Look at the performances of the STI in May for those cases.   3 times out of 4, the STI had gone on to register a loss in May.   In 2 of the cases, the drop was more than 200 points.

A change in the direction from positive to negative of the STI from March to April had not really boded well for the STI in May.

This indicates that the STI may follow suit with a loss in May this year.


Now, you have both methods yielding results that point in the same direction.  

The results show that the STI looks more likely to go down this May than not.   If it does go down, a drop of over 200 points is also something that should not be unexpected.

So, will the STI really go down this May?   If it does, will it plunge by more than 200 points?

Let's watch how it pans out.

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