Market Outlook for 11/5/2011

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STI indeed surge higher yesterday and closed at 20ma which I had expected yesterday. However, the surge action was lack of strong volume and this is pretty worrying for some traders as they expect strong buying. Furthermore, it closed at 20ma which many were unsure of whether it could break this resistance level. Will STI successfully break this 20ma resistance level? What would be the next resistance level to look out for?

The candle that was formed yesterday was a white candle which indicates that STI is still bullish. However, by observing the length of the candle, yesterday’s candle is shorter than the previous day. That implies that the bullish strength is weakening. Upper shadow also appeared yesterday which implies that STI had struggled to break 20ma yesterday. Based on the indicators, there is confirmation of the bullish signal yesterday. This bullishness might continue today as there is still no clear sign of bearishness. Thus, there is a good chance that STI might break 20ma today. If STI is to break 20ma today, STI will be heading towards the last level of possible lower high formation. This resistance level is 3180 level. If STI breaks 3180 today, chances of STI to downtrend is greatly reduced. However, I do not think that it is possible to break 3180 today based on the candlestick and volume that was formed yesterday.

The banks confirmed their bullish reversal formation yesterday. This would mean that the banks would likely to go higher. Furthermore, they managed to break the 20ma line and are trading above them except for OCBC. The offshore managed to stay in the positive territory yesterday except Sembcorp. They had managed to confirm their bullish signals and are likely to continue. However, the candle formation for Sembcorp and Sembmar are showing signs of bearishness. If they are unable to sustain their gains today, they might face some selling pressure tomorrow.

“The properties were not as bullish as the rest of the sectors yesterday with half of them in the negative territory. Capitaland and Kepland continued to face selling pressure and are unable to recover from its lower low. Citydev and F&N did stay bullish but they are might be facing resistance today. The commodities struggled to keep their heads up in the positive territory yesterday. Numerous counters like Golden Agri and Olam are now facing their respective MA resistance level. Golden Agri especially is struggling to break 3 MA resistance level but it failed to do so and ended up with a white shooting star. It might be a good target for the short side. ”

“In conclusion, the STI might still be able to retain its bullish strength today. The strength for the upside could come from the banks or even the offshore. However, the properties and commodities would provide some drag to the index. Hence, with the readings from the sectors, I will be expecting STI to be a pretty mixed day with not much strength on the bullish side. 20ma is likely to be broken but the market action would be capped by 3180 level. If the market starts to form any bearish candle today, it would be wise to reduce the long positions and start considering the short side. Therefore, the strategy for Long traders is to avoid going long and start planning to reduce long positions. Shortist should get ready to identify short positions and initiate shorts when there is confirmation of bearish signal. ”