The Raging Bull

STI did a rare price movement last week which not many people have experienced it. STI did a whopping 8 session of closing higher! Out of the 8 sessions, 7 sessions ended up as a white candle! STI gained around 130 pts which is about 4% in just 8 trading days. How often can you see this kind of market actions happens in the midst of disastrous events like Japan earthquake and Libya situation? Historical indeed! This will definitely leave a deep impression in my memory bank.

However, fear of retracement is now a common call for many people including me since last week. Many of us got wrong and surprised. Would the retracement happen this week or the raging bull is going to continued?
Let’s get the answer from the charts

Trend: Uptrend, 20ma up, MacD above 0

Support: 3180, 3150 (100ma), 3120

Resistance: 3220, 3260, 3280

Observations:
Candlestick – White candle with little lower shadow.
Histogram – 2 Rs. No bearish divergence.
RSI – Around 90%. Overbought. No bearish divergence.
Stochastic – Around 90%. Overbought. No bearish crossover.
Bollinger Band – Price trading in between upper band and mid band. Closer to upper band.

Conclusion:
STI manages to break the 100ma resistance level of 3150 last week and the bullish sentiment is so strong that it breaks another resistance level of 3180 level. Surprisingly, this strong bullish movement did not come with very strong volume over the week except last Friday. Nevertheless, the bullish sessions last week has confirmed STI to be in the uptrend situation. Any downside retracement would mean a formation of a higher low and should go higher when the formation is formed.

As STI had broken the 3180 resistance level, it could be heading towards the next resistance level of 3220. If this happens, this bull is going to be beyond raging and I would consider it as a crazy bull. This situation would be possible but not impossible. The key of whether it would happen could be depending on the participation rate of the shortist in the market. As I believed that they are the group of traders that are responsible to bring STI into such a surprising bullish movement.

On the other hand, if STI lost it steam for the upside, it could stage a retracement which I have been expecting since last week. However, comparing to last week, there would be changes to where STI can retrace to. As it had broken 3180 resistance level last week, 3180 has now turned into a support level where STI could be supported. But I doubt this support level could hold well as this is just a minor level. 3150 level could be the next higher low support level where STI could form a higher low as it confluences with 100ma. The worst case scenario would be 3120 level where it used to be a key resistance level. The most possible level for STI to hold on strongly right now based on my perspective is 3120 level.

The candle formation of Friday is a pretty long white candle with only lower shadow. This indicates that STI is still in the bullish condition and might still carry on it upside movement. However, the indicators are telling a different story. They continued to be overbought and starting to flatten slightly. MacD histogram is surprisingly showing 2 red bars signalling that short term bearish momentum is actually happening. Stochastic did not confirm MacD histogram’s reading as it did not trigger any bearish crossover. It seems to me that current market action is trading at a condition where short term indicators can’t read its movement clearly.

In conclusion, the STI now is confirmed to be in an uptrend condition. However, what is bothering is that it had gone to dizzy highs and retracement probability is getting much higher. The bulls actually have a good upside room towards 3220 level but on the other hand, in terms of historical patterns, retracement should happen in order for STI to build up strength to reach of the higher level. Hence, if retracement is to happen, it might be supported at 3180 or 3150 or 3120 level. I am expecting 3150 level to hold with the worst case scenario to be at 3120 level. The indicators are not indicating properly what would be likely scenario for this coming week, whether it will continue to be bullish or bearish sentiment would take over. The indicators are currently giving conflicting signs. Therefore, in such confusing situation, it will not be wrong to take cautious stance to not take any new long positions. Taking some profits off the market is not wrong too. Shorting and closing all position should not be a good strategy to look at right now.

What to watch out for this week:
1) Testing of 3220 level to form a higher high.
2) Retracing back towards 3150 or 3120 level.

Trading strategy to adapt right now:
- Long position can be initiated using breakout strategy but be cautious about it.
- Alternatively, wait till a retracement towards 3150 or 3120 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.