Technical Analysis 11th December 2008

Hi all, sorry I have not been around for a while. There were some major changes in my life and I had to take care of those.

It’s a good time to take a look at the charts again cause lots have changed since. The US markets are a little weak after the rally recently. The S&P remains shakey at the 900 level and calculations shows a retracement in the making. It does seem a re-test at 800 is unlikely. Possibly at around 820 for now. This is determined through indicators, fibonacci and the usual support and resistance. I am still anticipating a short term retracement, before a next push up.

The STI has broken out of the symmetric triangle formation. It is not a powerful triangle breakout due to lack of volume reduction, the breakout is too near to the apex, and the time horizon isn’t long enough. These make it sorta week but nonetheless it is a breakout.

Allow me to quote what the core trainer of Chart Nexus Jay Chia has written based on his analysis. I fully concur with his analysis so here it is-

“STI recently has formed a higher low during early dec and this week, it broke 1740 level which is the previous high. Uptrend happens when higher low and higher high is being formed.

Further confirmation can be seen from ADX Bullish DI Crossover. This mean that the underlying sentiment of STI has changed from bearish to bullish. Further uptrend confirmation is needed for both MacD and 20MA line to show bullishness. RSI which measures the price actions starts to trend upwards signifying buying activities are seen. Hence, likely to see continuation of upside.

Let’s now look at the key support and resistance levels.

STI recently broke the key resistance level of 1740 level. Which means that this level will turn into a support. The next key support still remain at 1470. As for resistance, numerous resistance is to be taken note of. STI is currently hitting 50MA as resistance, hence, do expect some resistance over here. The next immediate horizontal resistance will be at 1900 level which conside with 23.6% Fibo resistance level. The most important level to watch out for STI is 2160 level which is 32.8% of Fibo level.
In conclusion, as the key resistance level of 1740 level is broken, numerous indicators indicated that the uptrend could be formed. Hence, it will be wise to look on the long side. But, do take a cautious note on the long side as there is still numerous resistance levels that we should watchout for, as this could be a bear rally. ”

In this chart which I drew before reading his analysis, you’ll find the fibonacci levels as seen. The highs were taken quite sometime ago and will prove to be the ultimate resistance. The early signs of the rebound were shown through volume. Green days came with higher volume while down days with lighter volume. This is bullish in terms of buying supports put in. MACD remains below 0 and I interpret it as the market is still in a downtrend. Clearly we have a lot of resistances to clear and the charts (data is not in for today’s down day yet) have shown that a retracement is in the works. First support at 1740. My trading strategy is that if this is tested and bounces off, it is a good opportunity to go long. Conversely a crack below the support could see it re-testing the trendline resistance turn support (downtrend line) with a price target of the previous low. The way I see it? There is still a lot of pessimism in the air. Analysts have been downgrading still and have been posting countless “Why this is not a bottom” reports. The contrarian in me says, based on all those, watch out for the rebound. The short sellers would have been squeezed recently and when either side (bull or bear) begins to lose money due to failing signals, it warns of an impending trend change. A trend change does not mean the bear market is over. It just means a sustainable rally may come into fruition.

Bottom line – Watch for the retracement to bounce off support levels for a good trading opportunity.

Many charts have also shown bearish formations. StraitsAsia has formed an evening star. Beautiful. Others have formed hanging man (SembMar) and a shooting star (Cosco, if I remember correctly). I am not intending to go short to ride the retracement at this juncture. What I am looking for is a safety margin for a possible long position with a chance of a good upside move. This is violated if major supports have been breached. The first being 1740. If the market is very bullish and decides to breakout, watch for the complete formation of the double bottom (W formation) with a breakout on high volume.

Have a good remaining week!