The Bear is Back !

After STI had tested 3180 level the previous week, it failed to break 3180 resistance level last week. 3120 support level also failed to hold and STI’s chance of turning uptrend had vanished after the support level broke. 3120 level had also turned into resistance last week as most of the trading days struggled to trade above it. 3080 support level held the market for sometime but it failed to hold on last Friday where STI closed 2pts slightly lower than 3080 level. Trading volume was on the low side for the whole of last week as traders chose to stay sidelines. DJI’s last Friday’s night closing experienced one of the biggest drops in one day during the month. This could cause some fears of further downside to happen for STI. How low could STI goes for this week?

Let’s get the answer from the chart.

Trend: Sideways bias towards downtrend, 20ma slightly down, MacD below 0

Support: 3080, 3040, 2960

Resistance: 3120 (20, 50, 100, 200ma), 3180

Observations:
Candlestick – Long black candle.
Histogram – Many Rs. No divergence.
RSI – Around 40%. No divergence.
Stochastic – Around 18%. Oversold. Bullish crossover yet to form.
Bollinger Band – Out of lower band. Band opening up.

Conclusion:
STI broke the important support level of 3080 last Friday. However, breaking of this strong support level did not come with high volume. This could imply that STI might be experiencing a possible whipsaw at the support level of 3080. Chances of whipsaw at 3080 level could be dampened by the bearish closing of DJI during the Friday night. STI could possibility open lower on Monday as participants of the market might have digested and feared further down side for the market on Monday. Therefore, STI could possibly trade lower on Monday morning.

As STI broke the previous higher low that was formed around 3090 level, STI’s trend could have changed to downtrend. This downtrend formation could have been further confirmed when STI breaks the sideways support level of 3080 level. Breaking of sideways support level could also yield a strong downside possibility as the sideways movement is a consolidation period for downtrend. The immediate support level for STI now stands at 3040 level which is likely to be a minor support level. If the market has strong bearish reactions, one should not be surprised to see the market to reach psychological level of 3000 or even 2960 level during this week. Any upside currently would likely to be capped at 3120 level.

The short term indicators continued to be on the bearish side indicating that the bears are controlling the market currently. The Bollinger squeeze which has been forming for the past few weeks at last experience a broke out of its lower band and is now starting to open up. This action in the Bollinger Band indicates that STI is going for more downside movement. With 20ma pointing down and MacD below 0, STI is confirmed to be now trading in a downtrend. However, with oversold indication in the short term indicators, one could expect some minor rebound during the week so as STI can form a lower high. Lower low formation is also highly anticipated at the support level of 3040 level for this week.

In conclusion, the STI had at last breakout of the sideways and is most likely going to experience more downside movement for this week. Given that 3080 support level is broken, STI should at least head towards 3040 level this week for its formation of a lower low. A slight rebound towards 3080 or 3120 level could also happen within this week so that STI can form a lower high formation. Lower high formation will further confirm STI’s trend to be downtrend. Sideways movement is unlikely be the direction for this week already.

The strategy for this week would have many changes as the market is now turning into downtrend. Shortist can rejoice if they had short position although they were much encouraged to reduce their short positions last week due to lack of bearish strength. Breakout strategy for the downside can be a good choice but be wary of the lack of good risk reward. If there is a gap down movement on Monday morning, Shortist can be patient to wait for gap covering to short. Long position traders have to close their long positions to avoid further downside risk. Any slight rebound would be the best chance of closing existing long positions for this week. Adding new long positions are the worst strategy to adopt right now as the downside risk is much higher.

What to watch out for this week:
1) Testing of 3040 support level.
2) Testing of 3080 resistance level.

Trading strategy to adapt right now:
- Short on breakout with high volume
- Short when there is rebound for gap covering or when STI test 3080 as resistance

*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.