The day where earthquake shook the market

Japan had a major earthquake. This earthquake shook the whole Asian market as we were trying to form a market bottom. STI was not spared as tremors in the stock market rippled to our shore. Everyone was devastated and spooked and created fears again causing people to flee out of the market on Friday. This earthquake really dampens the mood of recovery from the downtrend and puts us back into the state of whether the market had bottom out yet. We were having a very good sign of downtrend reversal as market had broke above 20 and 200ma last week but the earthquake had shake us out from this level. Do we still have a chance of forming an uptrend in the aftermath of the earthquake or are we still going for another downtrend slide? Let look into our charts for the answer.

Trend: Downtrend, 20ma down, MacD below 0

Support: 2960 (Recent low), 2910

Resistance: 3060 (20ma + 200ma + Falling window), 3120 (Recent high), 3180 (50ma & 100ma)

Observations:
Candlestick – Black hammer a-like.
Histogram – 2Rs. Slight bullish divergence is seen.
RSI – Around 50%. No bullish divergence is seen.
Stochastic – Bearish crossover already formed.
Bollinger Band – At mid band.

Conclusion:
STI managed to break above 20 & 200ma last week, however, due to the earthquake; STI failed to hold above these 2 MAs and was quick to trade below it with a gap down. This movement indicates a high has been formed and this high is at similar level as the previous high. This could mean that STI might be turning sideways with a range of 2960 – 3120 level or if STI is to form a higher low between this range, STI might have the chance to turn uptrend.
The current support level for STI stands at 3020 level where a possible higher low could be formed. If STI stays supported and holds above this 3020 level, it might start to form an uptrend. But to confirm its uptrend, it must first break the immediate resistance level of 3060 which confluences with 20ma, 200ma & a falling window as resistance. This level seems to be a very tough level to crack again. However, if the market decides to ignore the earthquake incident, there is a probability that STI can crack this 3060 level and even heads towards 3120 level. If this scenario happens, STI would be trading in a bullish environment and should not have a problem breaking 3120 level to head for a higher high formation.
On the other hand, if STI fails to hold at 3020 support level, it could only mean that STI is heading towards to confirm it sideways movement or even continuation of downtrend. If STI heads below 3020 and test 2960 level as support, there is a chance that STI would turn sideways. Sideways would be confirmed if STI formed a low at 2960 level. But if 2960 fails to hold, it would only mean that the bears are back into play and downtrend would continue. If that was to happen, STI might find its next support at 2910 level.
Looking at Friday’s candle formation, the long lower shadow indicates that there is buyers coming into play before the market closes and this signifies that there is slight bullish in the market. However, the day still end as a black candle indicating that there is more bears then bulls on Friday. The indicators also tells similar story where bearish histogram and stochastic got confirmed. So this means that the bearish movement could carry on. RSI furthers reinforce the downside probability as it shows that it is being resisted by the 50% level.
In conclusion, STI might have a higher probability of heading southwards for this week and 3020 level would be the key. If 3020 level fails to hold, STI might be heading towards 2960 level again. 2960 level would be another key level to watch out for as breaking it would mean the hope for market bottom would have vanished. Hence, we should be prepared for downward movement for this week but uptrend opportunities are still there. We should be watching closely to see how market react at 3020 level and any bullish reversal formation there would give STI a chance to turn uptrend.

What to watch out for this week:
1) Formation of bullish reversal candle.
2) Breaking of 3020 support level.
3) Breaking of 3060 resistance level.

Trading strategy to adapt right now:
- If bullish reversal candle is formed at 3020 level, can look for stocks to long.
- Short position can be initiated if 3020 level fails to hold.

*Disclaimer:
This analysis is provided to you for general information only and does not constitute a recommendation, an offer or solicitation to purchase or sell the product mentioned. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of you acting based on this information. Investments are subject to investment risks.
Please consult your respective advisers.