Election is over! What’s next?

At last, the excitement of the election has ended. The expectations of PAP losing votes had come true. However, the leading party still managed to maintain the majority of the parliament seats despite speculation that the party might lose more. These expectations had created STI to make downward adjustments to the market. However, the market sentiment seems to be more greatly affected by the fall in commodities prices and the rest of the Asian markets rather than the election. Could the positive election results dictate the market direction to be positive this week? Or could it be the rebound in commodities market to bring STI to a stronger level? Or could it be the Asian market?

Let’s get the answer from the charts

Trend: Bearish Sideways, 20ma slightly down, MacD above 0

Support: 3080 (50ma), 3040, 2980

Resistance: 3120 (100ma & 200ma close), 3180 (20ma close), 3200

Observations:
Candlestick – White Hammer.
Histogram – Many Rs. Bearish divergence is seen
RSI – Around 40%. No clear bearish divergence.
Stochastic – Around 18%. Bullish crossover is not seen. Oversold.
Bollinger Band – Price trades at lower band after breaking out from a squeeze.

Conclusion:
STI failed to hold its crucial major support level of 3120 last week. This price action would indicate that STI might be starting to form a downtrend. Further assurance came when STI tested 3080 level which would be a lower low level for STI. Lower low formation would normally come with a lower high formation which will confirm STI’s direction to be downtrend. However, we can’t jump into conclusion that STI is going downtrend as it is because STI had yet to form a lower high yet.

There are 2 possible levels for STI to form a lower high. 1) 3120 level which used to be a major support level could now possibly turn into a major resistance level. 2) If 3120 level is not a good resistance level, 3180 level would be the next possible one. Judging in conjunction with the Moving Averages, 3120 level seems to be a strong resistance level as there are more confluences with the Moving Averages.

However, before we could see a lower high being formed, STI might hold well at the current support level of 3080. If 3080 failed to hold and breaks, this would indicate that STI would be heading towards 3040 level for the next support. The worst case scenario would be testing of the other support level of 2980 level. Judging from the white hammer formation on Monday, the formation indicates that STI might be holding well at 3080 level. Although the indicators had not form any bullish signals, on can see that Stochastic is narrowing and might have a crossover as long as STI decides to trade higher on Monday. Therefore, chance of rebound is there but Monday’s closing must be much higher than last Friday’s in order to trigger bullish signals in the indicators.

In conclusion, the STI had failed its uptrend formation last week and might even have a chance to form a downtrend. The key for formation of downtrend would be a rebound to form a lower high. The 2 possible levels for formation of lower high would be 3120 and 3180 resistance level. 3120 level would be a stronger level as it has multiple confluences with the Moving Average lines. However, if the current support of 3080 fails to hold, we would see STI to head towards 3040 level. Currently, a possible rebound could be seen due to last Friday’s hammer formation. With the better than expected results from the election, it could be a catalyst to confirm the rebound on Monday. However, STI might still face pressure from commodities prices and Asian market movement.

Numerous traders could be upset by the suddenly swing from uptrend to downtrend recently. They could be eager to clear off their positions right now upon any rebound. Therefore, Long traders would had missed the opportunities to close their positions last week might have a good chance to close their position as a better price if the rebound is to happen. Now Long positions could be initiated as a counter trend trade. Be prudent to take profit fast if this strategy is adopted. For Short traders, there might be some opportunities to short after the rebound has happen. The resistance levels at 3120 or 3180 level would be the key to decide what action to take.

What to watch out for this week:
1) Testing of 3120 or 3180 level to form a lower high.
2) Breaking of 3080 support level.

Trading strategy to adapt right now:
- Counter trend Long position can be initiated if it gives a good risk reward. Be sure to take profit when resistance level is met.
- Alternatively, wait till there is a clear uptrend before going on the Long side
- Short can be consider once resistance is formed.

*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.