Market Outlook for 12/5/2011

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STI continued to surge higher yesterday as it reacted to strong overnight gains by the US market. It has now reached the level of 3180 where it is crucial to determine whether the downtrend would remain. However, last night, the oil prices plunged heavily causing the oil & commodities related stocks to follow suit. Will this impact the bullish movement in STI for this few days? Will a lower high be formed at this level?

STI formed a white candle with a body that is shorter than the previous days. This indicates that the bullish strength is getting weaker. However, the price is now trading above all the MA lines which could also indicates that in a longer term, there is a higher possibility that the uptrend is forming. The indicators currently are still showing its bullish indication but it is interesting to note that Stochastic has just entered the overbought range. Resistance level at 3180 still stands and if the market ignores the overnight drop in oil prices, it might have a chance to break it. Therefore, we have to look at the individual sectors for a clear picture of what is likely to happen today.

The banks performed strongly yesterday with a strong gap up yesterday. UOB and DBS managed to break for a higher high and could indicate more upside is to come. However, as they gapped up yesterday, there is a chance that price might retrace back to cover the gap after this breakout. As oil prices plunge, it will be really interesting to analyse the offshore sector. The offshore were trading very mixed yesterday as they attempted to trade higher yesterday. However, selling came before the market closes and they are trading slightly higher than the 20ma line. This 20ma line would be crucial to sustain their sideways movement. If they fail to hold above 20ma today, it would mean that they could be forming a lower high.

The properties were pretty mixed yesterday as they did not trade with close co-relationship with each other yesterday. Capitaland is still trying to find a support level to form lower low. Kepland had a good rebound yesterday but was capped by 3 MA lines. It could be a good shorting candidate for this few days. The commodities attempted to trade higher yesterday but they struggled to hold their bullishness. Selling came into the market before market closes. Many of them are now trading at resistance level and even formed black candle or bearish reversal pattern. Noble grp and Golden agri are showing good setups for continuation of downtrend.

In conclusion, the STI is unlikely to break the 3180 resistance level today amidst to the big drop in the oil prices. As oil prices can affect the offshore and commodities, selloff in this sector cannot be avoided. In the sector analysis, the offshore and commodities are also showing bearish candles and are either showing risk of turning downtrend or are continuing its downtrend. Hence, these 2 sectors might create a drag to STI. STI’s 20ma which is currently at 3150 level might provide some support today but if it fails to hold at 3150 level, and then we have to expect it to fall towards 3120 level again. If that happens, lower high might be form and STI would be running a risk of being downtrend. Hence, one should be actively looking to offload their long positions, especially those that are in offshore and commodities. Shortist can look forward to short as long as there is confirmation on the bearish candles.