Uncertainty and cautiousness continues

Refreshed concerns on the Greeks debt woes surfaced again. A new IMF chief after the former chief charged for sexual assault. Plentiful of news for the economies flooded the market last week. All these news brought lots of turbulence to the market last week. STI went into seesaw mode last week and ended up only 4 pts up for the week. Regional markets are also behaving the same way with lack of bullish strength. US market also failed to regain its strength last week as it continued to slide lower after a small rebound. With such conditions looming, traders in the market are getting more and more cautious and is unlikely to take big positions. Will such uncertain conditions carry on or is market getting ready for another big movement?

Let’s get the answer from the chart.

Trend: Bearish Sideways, 20ma flat, MacD above 0

Support: 3120 (50, 100 & 200ma) 3080, 3040

Resistance: 3180, 3210

Observations:
Candlestick – Small black candle. Possible bearish harami.
Histogram – 3G only. No divergence.
RSI – Around 50%. No divergence.
Stochastic – Around 60%. Bullish crossover had already been formed.
Bollinger Band – At the mid of the band. Band is still narrow.

Conclusion:
STI continued to consolidate sideways last week and it is still trading above 3120 level. STI managed to test 3120 level where there is a multiple confluence of MA lines and the market managed to prove that this 3120 level is a strong support level as it bounced off strongly from that level. However, STI failed to break the resistance level of 3180 after the strong rebound. This kind of movement had technically changed the trend of STI to be of sideways. Hence fore, STI could probably continue to trade within 3120 level to 3180 level.

As STI still has a lower low formation, there is still a possibility that it could still form a downtrend. The key level for us to look out for a high possibility of downtrend formation would be the 3120 level. If STI decides to break 3120 this week, we should see a high chance of STI heading toward 3080 level and could even break 3080 level. If 3080 is broken, downtrend would be confirmed and STI should be heading towards 3040 level. On the positive side, there is also a good chance for STI to break 3180 level, but in order for STI to turn into uptrend, it has to break 3210 level also.

The indicator could give us some clues of what is likely to happen. The MacD and RSI readings seem to have flattened. This indicates that the STI is directionless and this confirms the sideways reading. The Stochastic and MacD histogram is currently showing bullish reading indicating it short term bullish strength. Therefore, this short term reading could give the STI a bullish boost for this week. However, what is lacking for the boost is the candlestick formation that it formed on Friday. The formation clearly shows that STI fails to break the 3180 resistance level and could reverse the bullish readings; Conflicting readings from the indicators again. This is a typical sideways scenario.

In conclusion, the STI could continue its sideways movement for this week. The sideways range would be between 3120 – 3180 levels this week. It is important to watch for these 2 levels this week as it will determine the direction of the market for the next few weeks. Breaking of 3120 would bring downtrend movement for the market and breaking of 3180 level would bring uptrend movement. Conflicting signals for the indicators appeared again and this brings more assurance that the market is likely to trade sideways this week.

The strategy for this week would be pretty much the same as last week. Traders should stay cautious as there are a lot of uncertainties in the trend reading. Odds are still towards the bearish side, but it seems that the downside is getting very limited by 3120 support. More downside would come only when 3120 breaks. Long traders should have already close or reduced their long positions and stay sidelines. Shortist might want to go for some quick short trades as the downside are very limited right now.

What to watch out for this week:
1) Breaking of 3120 support level.
2) Breaking of 3080 support level.
3) Breaking of 3180 resistance level.

Trading strategy to adapt right now:
- Stay sidelines
- Short positions can be initiated only if there is good risk reward and setups
- Close half short positions when support level is reached.

*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.