Technical rebound if confirmed but continuation of downtrend is near.

STI enjoyed a rebound last week as it started to rebound towards the expected resistance level of 3080 level. Last week’s price action was mainly contributed by the easing of Greek debt worries as policy makers are willing to help out with the situation. This brought buoyant mood to the market. There were some selling actions in the mid week but 3040 resistance turn support level manages to hold the market well. Traders of the market were speculating and expecting that funds would be doing some window dressing to mark the closing of the mid-year trade. Would this rebound carry on for this week? Will window dressing be really seen this week?

Let’s get the answer from the chart.

Trend: Downtrend, 20ma down, MacD below 0

Support: 3040, 3000 (Psychological level), 2960, 2920

Resistance: 3080 (20ma & 100MA), 3110 (50ma & 200ma), 3180

Observations:
Candlestick – White candle with upper and lower shadows.
Histogram – Many Gs. No divergence.
RSI – Around 35%. Just out from oversold. No divergence.
Stochastic – Around 70%. No bearish crossover but narrowing.
Bollinger Band – Closer to mid band. Band still opening up.

Conclusion:
Based on the price action for STI last week, it is very clear that STI had formed a lower low formation and it should be rebounding for a lower high formation. As noted since last week, STI is possible to form a lower high at 3080 level. The price action for last week had shown that STI had struggled to trade higher when it come close to 3080 level, and on Friday, it closed at 3066 which signifies that it still has yet to break 3080 resistance level. Hence, STI might still have a little bit of room to reach that level but it might not be able to break it as 20ma now confluence with 3080 resistance level. The indicators would give us more hints of what is the likelihood of breaking 3080 resistance level.

The short term indicators are still on the bullish side, however, Stochastic is showing some signs of weakening as its current formation could be a setup for possible bearish crossover. In the previous week, the indicators were in the oversold situation, but last week, STI manages to creep out of the oversold region and if back to the normal range. Although this rebound seems to be a bullish rebound, the underlying trend still remains as a downtrend because MacD is still on the bearish side and 20ma is still sloping downwards.

Based on these indications, STI might still have some bullish strength to rebound towards 3080 level. However, as the bullish strength is starting to weaken, I doubt STI would be able to break 3080 resistance level this week. If a bearish reversal is to be formed this week at or near to 3080 level, STI could possibly form a lower high formation here. To further confirm the continuation of the downtrend, STI would have to break the immediate support level of 3040. This would be likely if the indicator starts to form bearish signals. On the other hand, if STI is still bullish despite weakness in the bullishness, STI might have a small chance of breaking 3080 level. Breaking of 3080 level does not mean that STI would turn uptrend. There is another resistance level at 3110 level where it will be have to penetrate pass due to multi-confluence of MA lines.

STI will continue to face strong resistance at 3080 for this week. Breaking 3080 resistance level is very unlikely for this week. Although the indicators are still showing bullishness, there are signs that the bullishness are weakening. Trading situation is now no longer oversold and hence, the rebound could have already been fulfilled. Even if 3080 resistance is broken, STI would still face a stronger resistance level of 3110. Therefore, any further upside for this week would be capped. As STI is still in the midst of forming a downtrend, the key level to confirm the downtrend would be 3040 support level. If STI is to break this support, we should expect a lower low to be formed at 2960 or even 2920 support level. In conclusion, the window dressing sentiment could continue for this week but I do not expect much upside impact by it. Window dressing sentiment could possibly hold the market sideways between 3040 – 3080 levels for this week but I am also prepared for 3040 support level to break this week.

The strategy for this week continues to be poised for the short side. Long traders whom had went countertrend long last week should make use of this rebound to clear their long positions as the risk of continuation of downtrend is getting much higher. Shortist might have initiated some short positions last week but was disappointed with Friday’s closing. As the trend is downtrend, Shortist should be confident with holding on their short positions as long as the stop losses are not being triggered. Those whom had missed out the opportunities last week would enjoy another round of opportunities this week if the risk and reward remains good.

What to watch out for this week:
1) Bouncing off 3080 resistance with a bearish reversal formation.
2) Breaking of 3040 support level.

Trading strategy to adapt right now:
- Close long positions if it is bought based on counter trend last week.
- Initiate short positions if there is confirmation of bearish signals.

*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.