Market Outlook for 13/5/2011

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STI had a strong gap down yesterday, reacting to the drop in oil prices and US market’s decline. Selling was seen throughout the day as traders scrambled to of load their positions. STI eventually broke the 3150 level as identified yesterday and lower high formation is likely to be formed which could continue its downtrend. Will more selling pressure comes in today? Where would be next likely support level for STI?

STI formed a long black candle yesterday. This signifies that the bears had taken over the market and price is likely to go down further. Closer look at the past few days candle, it seems that STI had formed an evening star formation. This formation is a bearish formation. However, STI closed very near to the 100ma level and below the current price, there are still 200ma (3120) & 50ma (3100) which could provide support level for STI. It seems that STI is encountering multiple support levels going forward and might struggle to break these levels. Looking at the indicators, the MacD histogram is starting to show bearish signal. But the Stochastic had yet to show a clear bearish cross yet. Hence, the bearish strength for STI might not be strong. Therefore, I would not rule out a rebound but it might be capped by 3150 level.

The banks suffered a sharp drop yesterday as traders get rid of their long positions in them. DBS is now back to the sideway support level of 14.50 and might be supported there. Selling pressure could continue to occur for the banks. The offshore suffered the impact of the drop in oil prices yesterday. As noted yesterday, it is important that they are to maintain their 20ma level. However, the offshore failed to hold at 20ma level and is now trading below it. This also means that they have confirmed their bearish reversal candles and is likely to go lower. However, they are now trading pretty closely to their recent low and there might be a slight chance that we might see a little rebound at the support level before heading lower for the next few days.

The properties which have been quite resilient did not manage to avoid the bearishness in the market yesterday. They suffered strong sell off that increases the risk of continuation of downtrend. Citydev was the worst of all as traders dump the shares. The commodities were surprisingly resilient yesterday as they did not suffer heavy sell down. Only selected commodities like Noble grp suffered a large drop. The bearish movement by the commodities yesterday has indicated that it is now likely to form a continuation of downtrend.

In conclusion, the STI is likely to have formed a lower high formation based on yesterday’s movement. Various sector has shown similar formation and prices are likely to go down further. However, as STI is going to face multiple support levels before it is going to go lower, we might see some rebounds between 3100 – 3120 levels. Clearing of 3100 level would indicate more strength in the bearish side. Any rebound should be capped at 3150 level or highest it might go is 3180. Testing of 3180 would mean that this suspected lower high formation is yet to form properly. Thus, the strategy for today would still be avoiding going on the long side. Those whom have long position might like to make use of any small rebound to clear their long positions. Shortist would be on the roll as there would be many shorting opportunities available. Be reminded to short only when there is confirmation.