Daily Market Outlook for 14/6/2011

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STI indeed reacted to DJI’s weak closing on Friday and STI follow suit with a gap down. This movement had confirmed that the major support level at 3080 has been broken and the trend is heading for a bearish trend. Traders were eager to cut their positions or even reversed their positions to the short side. This created the trading volume to be much higher than past few days which can imply that traders are rushing out of the market. Will STI continue to slide towards the support of 3040 level today?

A short black candle was formed yesterday after a gap down. This gap down would create a resistance for the market which is between 3068 – 3079 levels. There might be a chance that STI might rebound to close the gap but it depends of the candle formation for today. The indicators are still on the bearish side and did not indicate any signs weakness in the bearish momentum. Although Stochastic is in oversold region, it does not imply that the rebound will happen immediately. RSI which is another alternative overbought/oversold indicator did not indicate that STI is now oversold. Therefore, chances of rebound are minimal right now. STI will most likely head towards 3040 level today.

The banks headed south as they had broken their important support level yesterday. DBS was the worst off as it failed to hold at is 100ma support and is now heading towards next support of 14.20. The rest of the banks were also quite a distance away from their immediate support level. They were likely to continue to head southwards. The offshore struggled to hold their support level as they managed to counter off the selling pressure yesterday. Kepcorp and Sembmar are now trading at their support levels and if they did not manage to hold their current support levels, they would be heading for a lower low. Hence, they would be continuing their downtrend.

The properties were the worst performers yesterday as they suffered heavy selling pressure yesterday. They continued their selling streak from last week till today. Currently, they are still quite a distance away from their respective support level and downward pressure will most likely continue. The commodities were spared from heavy selling yesterday as they managed to hold well at their support levels. Straits Asia starts to turn interesting for the long side as it had retraced to its breakout level of 3.00 which coincides with 20ma.

“In conclusion, STI is likely to continue down south towards 3040 support level today. The indicators are not showing signs of weakness in the bears. On top of that, various sectors had also broke their important support levels and yet to reach another support level. Therefore, there are still room for the drop. One key sector that would have more room to drop is the offshore sector. They are now currently trading at their important support level. Once broken, their downtrend would continue. Chances of 3040 support level to hold will be high as long as the rest of the sectors like the banks and properties are able to hold their support today. If this does not happen, we shall be prepared for more downside to come. The trading strategies, therefore, should be focused on the short side. Long traders whom still have long positions would be suffering losses right now. Cutting their long positions right now might not be a wise choice as 3040 support level is close. However, if the long trader refuse to take further downside risk, then it will be wiser to just close the long positions. Shortist would have been shorting or added short position based on breakout yesterday would be rejoicing. Shortist now must be ready to take partial profit as 3040 support level is drawing closer. Adding new short position might not be wise, unless there is good risk reward. ”