Japan earthquake to derail the economy? Shouldn’t it be bad news? Why has the market been going up? These must be the questions that pop out in many traders head. Everyone was surprised and confused; confused by the bearish sentiment that was quickly countered by a very bullish market. Ever since STI had hit a low close to 2920 level, it had rebounded very strongly till last Friday where it closed at 3120 level. This 200 pts rebound happens in a short time span of 2 weeks and this cause a lot of doubts whether is this just a mere rebound or a start of new uptrend.
This rebound gives a strong de jevu of what had happened before at numerous market bottoms. Let’s get the answer from the charts
Trend: Sideways, 20ma flat, MacD slightly above 0
Support: 3080 (50 & 200ma), 3030 (20ma), 2970
Resistance: 3120, 3150 (100ma), 3180
Observations:
Candlestick – White candle with upper shadow closed exactly at 3120 resistance level.
Histogram – Many Gs. Clear bullish divergence is seen.
RSI – Around 65%. Clear bullish divergence is seen.
Stochastic – Around 90%. No bearish crossover yet. Overbought.
Bollinger Band – Price trading in between upper band and mid band.
Conclusion:
STI manages to stay above 20ma last week and it even manages to break the strong resistance level of 50 & 200ma. This price movement further confirms that the market is indeed changing its trend and sentiment. Furthermore, STI manages to close at the major resistance level of 3120 and closed slightly higher than that level. This closing might have already broken the resistance but there isn’t much conviction as the volume is not high enough. However, one thing for sure is that the trend is no longer downtrend and is poise towards sideways for now. This also indicates that it has a chance of uptrend.
As STI had broken the recent high of 3113 level, one can conclude that STI is heading for a higher high. A higher high means that the trend would be an uptrend. However, Friday’s closing is marginally higher than 3113 level and could be concluded as a similar high. Hence, some people might still analyse it as a sideways movement. The key to confirm whether STI is an uptrend or still a sideways is 3120 level. If STI manages to trade higher than 3120 and heads towards 100ma as resistance (3150) this coming few days, STI would be concluded as uptrend. Strong volume accompanying the upside movement would be a further advantage.
If STI fails to trade above 3120 level this week, it would only mean that STI would retrace towards the support level of 3080 or even 3030 level. When these levels are reaching and STI managed to bounce off these levels, it would mean that STI forms a higher low; which would still end up as an uptrend formation. Therefore, 3030 level which is 20ma is a key level to determine whether STI would have a good chance of being an uptrend.
Looking at candle formation on Friday, it indicates its reluctance to break the 3120 level as it has upper shadow. However, the candle still remains as a pretty long white body which indicates that the bullish is pretty firm. Looking at the indicators, the MacD had just started to trade above 0 and this indicates that the market now is trading in bullish sentiment. RSI too, just manages to trade above 50% level which indicates bullish sentiment too. Both of these indicators tell that the market’s mid-term trend had turned to bullish sentiment. However, in the short term, Stochastic still remains in the overbought region but yet to show any bearish crossover. Therefore, the indicators are still poise to the bullish side and there could still be upward movement for this coming few days.
In conclusion, STI now has a very high chance of turning uptrend. If STI manages to test 100ma this coming few days, STI would be confirmed to be in an uptrend movement. However, there is also a chance of STI to retrace towards 3080 or even 3030 level. In order to stay as uptrend, STI must at least hold above 20ma level which is currently the 3030 level. The indicators have confirmed that STI is poised towards the bullish trend already. Therefore, chances of STI becoming an uptrend now are very high.
What to watch out for this week:
1) Testing of 3150 level to confirm the uptrend.
2) Retracing back towards 3080 or 3030 level.
Trading strategy to adapt right now:
- Long position can be initiated using breakout strategy.
- Alternatively, wait till a retracement towards 3080 or 3030 level before initiating Long positions.
- Avoid the short side as retracement is very limited now.
*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.
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1 user responded in this post
Yeh I know what u mean. I hear of japan dumping radioactive water into the ocean and you really wonder how come no one seems to give a hoot about the contamination in the pacific ocean. Perhaps the market thinks the worst is over and the long term effects of the disaster is shrugged off. Somehow over time, they may get reminded of this and use it as an excuse to sell off / take profit.
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