STI in consolidation mode

STI started last week with a strong opening but was unable to sustain its gains during the week, testing 3110 support level. 3110 support held well and rebounded strongly on Friday which STI ended slightly higher than the week’s opening. These price actions could mean that STI is still bullish. However, last Friday night, the US market reported weak jobs data which caused DJI to close lower. This could have short term bearish impact on STI for today’s opening. Would STI continue its bullishness this week or would it react strongly to the US market’s weak closing on Friday?

Let’s get the answer from the chart.

Trend: Sideways with possible downtrend, 20ma flat slightly turning up, MacD above 0

Support: 3110, 3080, 3040

Resistance: 3180, 3200

Observations:
Candlestick – Long white candle with a gap up.
Histogram – 1 G after 3 Rs. No divergence.
RSI – Slightly above 70%. Overbought. No divergence.
Stochastic – At 50%. No bullish crossover yet.
Bollinger Band – Closer to upper band. Bands opening up.

Conclusion:
STI traded slightly higher than 200ma on Monday but was unable to sustain above it during the week. When the price retraced, it tested 50ma and failed to break 50ma support. This 50ma support could be firm as price bounce of strongly on Friday. Friday’s price action even caused STI to trade above 200ma again. As STI had bounced off 50ma, it could have formed a higher low formation which could signify that its uptrend could continue. However, the concern for now is that this higher low formation did not have a significant retracement which might not be a good higher low formation. It is hard to confirm the trend is uptrend unless STI manages to break the recent high of 3164 level.

The trend indicators are starting to show signs of uptrend as 20ma started to tilt upwards and MacD is now trading above the 0 level. Hence, the underlying strength for STI might have turned bullish. Short term indicators, on the other hand, failed to show clear signs of bullishness yet as Stochastic did not trigger a crossover yet. Hence, there is still some risk of short term retracement before a clear uptrend is formed. It is also interesting to note that RSI is now trading slightly above the overbought region which could add pressures to the upside movement.

Hence, in the short term, selling pressure should be expected but support level at 3110 level should continue to hold as the underlying bullishness is still intact. 3110 support level could start to strengthen in the upcoming days as 20ma and 100ma is likely to trade higher and close to 3110 level. If 3110 level is to hold well, it will give further confirmation that STI is forming a higher low and uptrend formation would be much clearer. Any upside for now will still be capped at 3180 resistance level which STI might find trouble breaking it.

As 3110 support level is a very important support level for now, we also cannot rule out that this support level might not be able to hold. If STI fails to hold itself at 3110 support level, 3080 level would be the next possible support level for STI to form another higher low formation. 3080 would be the last line of defence for its uptrend formation as breaking would mean that the bears are in play. Therefore, 3080 support level will be the next important for STI to hold.

In conclusion, STI might still be consolidating for a proper support level for this week before it can head towards 3180 as resistance. 3110 support level will be expected to be tested this week again as the US market as a weak closing last Friday. 3110 level should be a strong support level as there are multiple MA confluences. Failure to hold at 3110 support level will result in STI seeking the next support level at 3080. Chances of 3110 support to hold should be high now as there are no strong bearish indications in the indicators currently. Therefore, I am expecting bearish movement for the early week but bullish movement is likely to come in the mid of the week. 3110 support level would be the key for my expectation for this week.

The strategy for this week can be a bit confusing as the market is trading neither here nor there. The strategy should continue to be bias for the long side as the underlying trend could be uptrend. Hence, when 3110 level is tested, entering long positions could be a good strategy to adapt. Shortist might not have good short setups as the market is still trading close to its support level. Traders whom have long position must be patience to hold onto their long positions and be vigilant to their cutloss point.

What to watch out for this week:
1) Testing of 3110 support level.
2) Breaking of 3110 support level.
3) Testing of 3180 resistance level.

Trading strategy to adapt right now:
- Close short positions when retracement level is reached.
- 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.