Retracement at last! But what’s next?

At last! STI finally can’t hold its ground and started to retrace towards 100ma. The retracement was quick as STI started off with a gap down last Monday and it started to head towards 100ma. Bargain hunters came into the market to snap up shares as STI hit 100ma. However, the buying strength was short lived and the market came retracing again for 2 days before market ends for the week.

Has the market finished its retracement or will its retracement continues? How deep will this retracement be?

Let’s get the answer from the charts

Trend: Uptrend, 20ma up, MacD above 0

Support: 3140 (100ma), 3120 (20ma & 200ma close), 3080 (50ma)

Resistance: 3180, 3220, 3280

Observations:
Candlestick – Short black candle.
Histogram – Many Rs. No bearish divergence.
RSI – Around 70%.No bearish divergence.
Stochastic – Around 50%. Bullish crossover is seen.
Bollinger Band – Price trading closer to mid band. Starting to squeeze.

Conclusion:
When STI breaks 3180 last week, it turns out to be a whipsaw and the market started to retrace. It tested 100ma and bounced off 100ma with a long white candle. This shows that 100ma could be a firm support level. However, it did not manage to break 3180 level and started to retrace right after the white candle is formed. This market action could indicates that the market is still consolidating to for a firm support level before it can break 3180 level before going for a higher high.

Based on Friday’s candle, STI might have a chance to continue to head towards the 100ma and test it again. Hence, I will not be surprised if STI starts to trade at 3140 level again this week. If 3140 level fails to hold this time round, the next support level would be 3120 level which is very close to 3140 level. 3120 support level is a strong horizontal support level and it could now confluence with 20ma or even 200ma. Therefore, the key support is at 3120 level. Breaking 3120 level would trigger indicate that STI is going for a deeper retracement.

On the other hand, if STI manages to hold its 100ma well, it could easily break immediate resistance level of 3180 level as the uptrend is still intact. If STI is to break 3180 level, it will head towards the next resistance of 3220 and might even test 3280 level. The odds of upside could be high as long as STI stays above the key support level of 3120.

The short black candle formation on Friday indicates the reluctance of seller as it does not come with heavy volume. On top of that, it is still trading above 100ma. Looking at the indicators, Stochastic had started a bullish crossover and the MacD histogram is starting to narrow. In terms of overbought condition, STI is no longer overbought as RSI and Stochastic had started to retrace below their respective overbought line. Therefore, and selling strength for this coming few days should be muted.

In conclusion, the STI is still in the retracement mode and is consolidating for form a good support level. There are good signs that 100ma support at 3140 level is holding well. However, the key support level would remain at 3120 level. This means that this retracement should not be a deep retracement. In the positive aspects, the indicators are starting to show some bullish signals and there might be a chance that STI had already formed a higher low so as to continue as a higher high. Breaking 3180 level would be the key to confirm the upside movement which STI would be heading towards 3220 or even 3280 level. Therefore, the market conditions now might be a good opportunity to pick out good long positions.

What to watch out for this week:
1) Testing of 3140 or 3120 support level to form a higher low.
2) Breaking of 3180 resistance level to confirm the uptrend.

Trading strategy to adapt right now:
- Long position can be initiated if it is trading uptrend and is at their support level.
- 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.