Market Outlook for 08/04/2011

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The raging bull of STI continued to send STI an inch higher yesterday. Selling happened early in the day but buyers started to flood the market again shortly before lunch break thinking that there is still upward strength for STI. It was the seventh consecutive days that STI did not ended in the negative territory. Traders starts to be jittery and indecisive on whether to continue to buy or to take profit off the market. Last night, Japan experience an earthquake aftershock of 7.1 magnitude. Would traders use this as an excuse to take profits from the market to cause an retracement?              
              
The candlestick formation that STI formed yesterday is a white hanging man formation. This hanging man indicates weakness in bulls and its lower shadow indicates that the bears are trying to take over the make. But due to the fact that it is a white candle, the bulls is still in control. Hence, it could indicate that there is still bullish strength for upward movement. Any upward strength should be capped at 3180 resistance level which STI is already very close to it. On the other hand, since there is indication of bears trying to take control, chances of retracement is also there if STI ends up as a black candle today and further confirmation would happen if  STI closes lower than yesterday’s low of 3157. The indicators currently remains at the overbought region and on top of that, MacD histogram and stochastic is now triggering bearish signal. Hence, bearish momentnum could take over today or the next few days. If STI is to retrace, its current support level is at 3150 level but a stronger support level would not be at 3120 level.              
              
The banking sector was one of the primary contributor of the gains in the market yesterday. UOB was the cream of the crop with it breaking its resistance and end the day as a long white candle. Its bullish strength might continue again. Ocbc and DBS might play catching up if the market condition is still bullish. The sector that had induced the STI to be down yesterday morning is the offshore sector. They failed to open higher yesterday and it started to trade lower throughout the day. This price action would mean that they are forming bearing reversal candle and is ready for a good retracement. Reducing positions in these counters are in the cards.              
              
The properties are fairly weak yesterday as they failed to hold their gains for the past few days. Capitaland and Kepland is interesting now as it lower shadow formation tested their respective MA line indicating their reluctance to break the MA support. Hence, do expect them to continue to test and hold above the MA support. The commodities sector was pretty mixed yesterday as some surge strongly but some was lack of activity. Olam and Straits Asia broke out for a higher high yesterday and their strength might continue. As pointed out yesterday, Wilmar continues to test the support level and could be a bullish reversal point. Today, indoagri would be also in my long watchlist target as it has show its strength to hold at the support level yesterday.              
              
In conclusion, the bullish movement yesterday is not broadbase and is very selective. It is known that UOB is the biggest contributor of the gain in the STI which countered the bearish effects of the Offshore sector. Hence, any weakness in UOB today might cause the STI to go back into the negative territory. The candle and indicators yesterday triggered a strong bearish signal indicating for a retracement. What is needed right now is for STI to close as a black candle and further confirmation would be STI closing below yesterday’s low of 3157 level. Market might use the earthquake aftershock as an excuse. Hence, eyes could be on Nikkei today to seek for its direction. The strategy right now is as usual. Reduce long positions to get ready the funds to pick up for long position. There is some counters with the right setup for a long position. Traders whom did not have a lot of trading positions might want to have a long position when its confirmation happens. Shortist again is best to avoid the market even though the odds are now on the bearish side.