Daily Market Outlook for 5-Jul-2011

*Disclaimer: This material 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. If there is any questions, please contact me (Jay)

STI had a strong opening yesterday as it gapped up towards 3180 resistance level. STI closes at 3153 which is around 30 pts to the resistance level of 3180. This bullish action is in line with the bullish closing of DJI on Friday night. However, as the market has been up for close to a week, traders were uncertain on whether this bullish movement will sustain. Hence, the trading volume for the day was not very strong. Moreover, with the change in the bid size commencing yesterday, some traders were confused by the changes and decided not to take any actions. Will STI start to retrace for today?

“STI formed a white star with slightly longer upper shadow yesterday. This formation shows that the bullish strength is weakening after a week of strength. This candle also formed above 200ma which STI had trouble breaking it last Friday. However, as the trading volume is low, it is hard to conclude whether it is a clear breakout of the 200ma resistance level. The indicators are still indicating bullishness yesterday but they are showing signs of weakness. Stochastic is now in overbought situation and the 2 indicating lines are narrowing each other which could form a bearish crossover. Hence, with such indications, chances of retracement are getting higher for today. ”

“The banks continued their strong performance yesterday as worries of Greek debt subsided. DBS and Ocbc were seen trading at their major resistance level but did not show any bearish indication yet. UOB, however, showed a bearish candle which forms like a bearish counter attack formation. Hence, the banks might encounter some selling pressure today. The offshore enjoyed strong gap up yesterday but some of them failed to sustain its gains. Sembmar is the only counter that managed to close higher than its opening and even ended its day with a clear breakout from it’s sideway formation. Sembmar could now be trading uptrend. Kepcorp and Sembcorp on the other hand ended the day with a bearish candle which could signify its end of its bullish run. ”

“The properties generally did a catching up with the rest of the sector yesterday by trading higher. Most of them managed to break the 20ma resistance level and stayed above it, which could possibly change their bearish trend. Kepland and F&N had a strong performance yesterday as they might be experiencing short covering from the shortist. The commodities were struggling to gain bullish sentiment yesterday but failed to enjoy a strong bullish rally yesterday. This could be due to weakening in oil prices over the week. Indoagri in particular is still struggling to break the 20ma line which result in sideways movement. ”

“In conclusion, as STI continues to go towards 3180 resistance level, STI might struggle to climb towards 3180 level today as participants in the market were lacking of more catalyst to buy the prices higher. With indication from the indicators, STI might be facing fatigue in its upside movement today. Hence, I will not rule out that STI might be starting its retracement today. If STI is to form a bearish candle today, it would likely head towards 3110 resistance turn support level to find its support over there. Sectors that could be leading the retracement will be the banking and the offshore sectors. As these 2 sectors are showing bearish candle formation, it will be more likely for them to bring the index down. Therefore, shortist whom had missed the opportunity to cut the losses for the past few days can make use of this retracement opportunity to clear their positions at their intended cut loss price. Long traders should get ready their war chest to enter long positions once the retracement is done. Initiating new long positions today is not very advisable as the market has yet to form any meaningful retracement. 3110 support level should be a level to watch for the long traders. ”