Daily Market Outlook for 24/5/2011

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It was a bad day for STI yesterday, dropping 58 points. It had experience one of the biggest drop in a day since the Japan earthquake. The main reason was the worry of the Greek debt crisis which might impact the world economy. What was made worst is the low buying liquidity in the market which many investors choose to seat sidelines in the market during this period. This movement further confirms the phenomenon of “Sell in May and go away” statement that has been in the market for a long time. As the market had broke the important support level of 3120 which I had pointed out yesterday, what will be the next important level to watch out for? Will STI carry on suffering selling pressure today?

“STI formed a long black candle yesterday which penetrated 3 MA lines. It closed slightly lower than the 50ma line and I am quite unsure whether it is a clear break of the MA support; the reason is the volume. The volume was not significantly high as it is ends up slightly higher than the average. The selling is not as strong as the volume is not very significant. Looking at the indicators, they swing very abruptly from bullish reading to bearish reading yesterday. The MacD histogram formed a bearish red and Stochastic is starting to form a bearish crossover. This might trigger more bearish movement for the short term if they are being confirmed today. ”

“The banks failed to maintain their bullishness last week and ended up confirming their bearish reversal signals that are formed on Friday. What was made worst is the gap down which most of them created. The gap could now cap the banks’ upside for this few days. Selling could be expected today but would be limited as they are trading very close their respective support levels. The offshore continued to suffer selling pressure despite its attempt to trade stronger last week. Bearish H&S formation for Kepcorp and Sembcorp has been confirmed yesterday with a strong breakdown of its neckline. It is now more likely that it might continue to go lower for the next few weeks but there is also a small change for a short technical rebound today. The upside for the technical rebound would be capped at their breakdown level. ”

“The properties were not spared despite their usual behaviour of trading sideways. Kepland suffered the most as it broke its recent low and would be going for a lower low. Capitaland, Citydev and F&N are also in danger of breaking their recent low. If they break it today, further downside would be seen for them. The commodities suffered one of the worst sell off this year yesterday. Indoagri released the news of IPO price of its subsidiary over the weekend, suffered sharp downgrades by analyst. A whopping 15% drop in price for Indoagri yesterday created lots of jitters for investors in this counter. Its comrades in the sectors suffered the fear of similar scenario and investors started to flee from them also. ”

In conclusion, as STI had broken the important support level of 3120, it is no doubt that it should suffer selling pressure in the upcoming days. However, there might a small possibility that STI might get support by 50ma today as the selling pressure was not very strong yesterday. Numerous sectors are trading close to their respective support level too. Thus, I will not be surprise to see some technical rebound today. As a gap was created yesterday, there might be a chance for STI to rebound to close the gap. Hence, the upside for the rebound would most likely be capped. The strategy for now is as follows: Long traders would have suffered losses if they had entered long last week and did not take profit in time. They can make use of the technical rebound to reduce their losses today. Shortist must be laughing to the bank right now, but they must be aware of taking partial profit to avoid surprise from this possible technical rebound. Initiating new short position is possible but one must watch out for good risk reward. I doubt the risk reward for shorting is fantastic right now.