Market Outlook for 18/5/2011

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On Monday, STI failed to continue its bullish strength and traded with a gap down instead. Trading volume was also pretty low which might be due to the pre holiday effect. Traders were not eager to enter the market as they would experience the risk over the holiday on Tuesday. Hence, they were lack of buying strength to counter the gap down and more traders were clearing their positions. Concerns of STI forming a downtrend are still intact as STI did not break 3180 level. How likely would market react today as DJI traded into the red during our holiday?

STI formed a small black candle on Monday. This candle was formed between the 20ma and the 100ma. It closed slightly higher than the 100ma with short lower shadow indicating its refusal to break the 100ma on Monday. This could signify that the market was bearish on Monday but it was an indecisive bear. Based on the indicators, the Stochastic confirmed its bearish crossover and is likely to continue its bearish movement. The rest of the indicators also showed signs of weakening. Therefore, STI is now more likely to continue its bearish movement. However, before we can conclude that STI is going to drop deeper, the MA lines might carry on to provide support for the current bearish movement. The last MA line to defend the drop is the 50ma. It is now hovering at 3100 level. Hence, 3100 would remain as the key to determine whether STI would still have chance to be bullish. Else, STI would confirm its downtrend and a deeper drop would be expected.

The banks failed to hold its bullish strength yesterday as they gapped down strongly. DBS was the worst performer as it broke 2 MA as support and is now at the crucial horizontal support level of 14.48. If DBS is to break 14.48 support, it would indicate that it might be a downtrend. The offshore were lack of buying interest as oil prices continues to slip. Selling pressure was seen throughout the day which caused Kepcorp and Sembcorp to be trading at their important support level. Breaking of these support levels would indicate that they are heading for a downtrend movement. Sembmar was the leader of the pack to start forming downtrend. Sembmar had also confirmed the bearish Head and Shoulder formation with good enough volume.

The properties did not avoid the selloff too. They suffered a strong gap down during the opening and throughout the day, they did not have chances to recover from the gap. Neither do they have the chance to trade lower again. This means that the properties is encountering a very indecisive day yesterday. Most of them are now trading at their important support level where breaking it would mean downtrend is being formed. The commodities were trading relatively mixed on Monday with selected few staying firm. Wilmar attempted to break the previous lower high and it seems to success in doing so as it is now trading 1 bid above the previous high. The rest of the commodities were also showing signs of strength as they attempted to close higher than their opening. Therefore, we might be able to see some bullish movement today.

In conclusion, the STI is clearly trading in an uncertain fashion, although, at the end of the day, they were trading lower than previous day’s closing. This kind of movement is likely to happen for today as STI is still struggling to break the MA support or even the resistance level. The trading range would likely to stay at 3100 – 3180 level. Bearish strength might come from the offshore or the properties sector as they are now trading at their important support level. Bullish strength is likely to come from the commodities as they are showing signs of refusal to go lower. Therefore, the strategy for today would still be in a cautious state of mind. Staying sidelines could be a good move. Traders for long position might find current levels to be appealing to go long; however, the setup for uptrend movement is very unlikely for now. Shortist might have felt that they had missed the opportunity to go short on Monday. However, the opportunities are too late as prices are now not worth the chase.