Sideways poise to continue in a tighter range

STI tested 3180 for the third time last week and failed to break it. The sentiment for the week was pretty bullish but lack of trading volume for it to break the 3180 resistance level. The bullish sentiment was actually broken by the selloff at the end of the week. Although the sell off happened at the end of the week, STI still managed to stay supported at major support of 3120 level. This shows that many traders were still wary about going on the long side and were unsure what is likely to happen next. Will the market holds its support at 3120 this week or will it break 3180 to confirm its bullish streak?

Let’s get the answer from the chart.

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

Support: 3120 (20, 50, 100 & 200ma) 3080, 3040

Resistance: 3180, 3210

Observations:
Candlestick – Black candle.
Histogram – 1R after many Gs. No divergence.
RSI – Around 50%. No divergence.
Stochastic – Around 60%. Bearish crossover had already been formed.
Bollinger Band – At the mid of the band. Band is still narrow.

Conclusion:
STI confirmed the rebound last week as STI had tried to test 3080 the previous week. The rebound last week had clearly formed a higher low for STI. However, it failed to break 3180 level for the third time proves that this 3180 resistance level is a strong one. Traders had no confidence of breaking the resistance level and thus, cleared their long positions when that level had reached before the market closed for the week. The MA lines are now clustering close to 3120 level and these lines could prove support for the market.

Similar to last week’s reading; for uptrend formation, STI must be able to break 3180 resistance level to form a higher high. Vice versa, STI would turn into downtrend when it breaks 3080 support level. STI might now trade in a tighter range of 3120 – 3180 level for this week. As a higher low has been confirmed last week, there is now a higher chance of STI would break 3180 instead. On the other hand, if STI break 3120 support level, the game will change again and the bullishness for last week would change to bearishness.

The short term indicators are currently more on the bearish side with MacD histogram and Stochastic triggering bearish signals. Therefore, bearish movement should continue for the start of the week. However, as 3120 level because a much stronger support level after last week’s movement, it might be unlikely to break. As long as 3120 level does not break, the underlying bullishness is still retained. Therefore 3120 would be the key level in order for STI to have a hope for turning into uptrend.

In conclusion, the STI will continue to trade sideways for this week. Short term bearishness should be seen early in the week but the downside should be capped at 3120 level. If 3120 level manages to hold well, we should be able to see STI to rebound to test 3180 again at close to the end of the week. However, if STI fails to hold at 3120 level, we would be back to square one and the whole trend would remain as sideways without any hints of bullishness. Therefore, I am expecting STI to be trading in a narrow range of 3120 – 3180 with a chance of break 3180 level if 3120 support holds well.

The strategy for this week would continue to be the same. Traders should stay cautious as there are a lot of uncertainties in the trend reading. Odds although has turned to the bullish side, there is still risk of downside if STI fails to hold at 3120 level. Long traders might have opportunities to go long when 3120 support is tested. But the trades must be quick and plans for reducing long positions must be done when 3180 resistance is reached. Shortist might want to make use of this opportunity to close short positions as 3120 support level is very strong, so as to avoid having a shock when price rebound off that level.

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

Trading strategy to adapt right now:
- Stay sidelines
- Wait for clear trend breakout before initiating any positions

*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.