The confusing and volatile market

STI continued its surprisingly strong rebound last week after it was encouraged by “window dressing” effect and approval of plan to tackle the Greek debt. This strong had traded against my expectation for last week and a re-evaluation of the market trend is needed to be done for this coming week or even months. Such strong movement could have already changed the bearish sentiment to a bullish one. Many traders were confused by the market and were seeking for a new trading direction again. Shortisst were being pushed out from the market and bullish traders were rushing in for bargain. Going forward, will this bullish strength continues? Has the bearish momentum truly ended?

Let’s get the answer from the chart.

Trend: Sideways with possible downtrend, 20ma flat, MacD slightly below 0

Support: 3110, 3080, 3040

Resistance: 3180, 3200

Observations:
Candlestick – Short white candle.
Histogram – Many Gs. No divergence.
RSI – Around 70%. No divergence.
Stochastic – Around 90%. Overbought. No bearish crossover.
Bollinger Band – At upper band. Starting to squeeze.

Conclusion:
STI enjoyed a strong bullish movement last week as it managed to break 3 MA as resistance levels, mainly 20ma, 50ma & 100ma. As these MA lines have been broken, it has illustrated that the trend of STI might be changing from downtrend to either sideways or uptrend. As there is no formation of higher high or higher low, we cannot conclude that STI had formed an uptrend. Neither can we conclude that STI is downtrend because there is no formation of a lower high too. It will be confusing to read the price movement right now as there is no clear highs and lows to take reference from currently. Hence, I would read it as a sideways trend.

Further assurance of the trend reading can be done using the indicators. 20ma is starting to turn flat which further concludes the sideways movement. However, the MacD is still slightly below 0 which is hard to derive that it is sideways. Hence, the sideways trend is still slightly bearish for now. The short term indicators are still showing bullishness and yet to show clear signs of weakness for now. However, it is interesting to note that Stochastic is now trading in the overbought region while RSI is nearing overbought region too. Therefore, the indicators indicate that in the short term, there should still be bullishness but upside should be getting limited as it is going to be overbought soon.

Hence, STI is likely to continue its bullish streak early this week towards 3180 resistance level but might face strong resistance at that level because of its possible overbought condition. If 3180 is tested, it would confirm that the market is going back into sideways trend. As the previous sideways range is between 3110 – 3180 level, STI could have a possibility of maintaining the same sideways range again. If STI manages to test 3180 and retrace to test 3110 level, there could be another possibility. STI could possibly form a higher low at 3110 to start forming an uptrend setup. As the previous low is at 3000 level, bouncing off 3110 would mean that STI had formed a higher low. Higher low formation is a setup for an uptrend formation.

In another possible perspective, if STI fails to test 3180 this week to confirm its sideways movement, there is still a chance that STI can continue its downtrend formation. Since there is absence of a lower high formation right now, STI can still form a lower high as long as 3180 is not being tested. However, as there is no clear resistance level between 3110 – 3180 levels, it could be hard for the market to be convinced to form a lower high within this range. Therefore, chances of continuing the downtrend would be pretty low compared to chances of formation of sideways or even uptrend.

In conclusion, as STI is still seeking for a clear trend formation. It will be hard to determine its direction for this week. Based on the indicators, we could possibly see that STI would be heading towards 3180 level. Once that level is tested, then we can only conclude that STI is going for a sideways. In order to conclude that STI is going for uptrend, a higher low must be formed higher than 3000 level. Currently, the possible level for higher low to form is at 3110 level. Therefore, for this week, we could possibly see STI trade with the range of 3110 – 3180 levels before we can draw further conclusion of the current trend.

The strategy for this week has to be really cautious. Shortist whom had shorted for the past 2 weeks should be eager to close their short positions whenever there is a retracement. Long traders as advised not to chase the current price levels as the upside is getting limited. Any retracements would be a good opportunities to initiate some long positions. The best level for shortist to close their shorts or long traders to long new positions would be at 3110 level. Hence, for now, waiting for the opportunity to come should be the key.

What to watch out for this week:
1) Testing of 3180 resistance level.
2) Breaking of 3040 support level.

Trading strategy to adapt right now:
- Close short positions if cut loss point is reached or wait for a retracement to close.
- Initiate long positions once they had reached a level which could have a possible higher low formation.

*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.