Daily Market Outlook for 13-Jul-2011

STI experienced a knee jerk reaction yesterday after reports of Italy might be facing similar debt issues like Greek. Traders were rushing to close their long position and even some when for short positions which caused a gap down during the opening. Panic selling was later seen in the market after lunch accompanied very little buying volume. STI even hit a low of 3056 level before it rebounded back to close at 3077 level caused by short covering for the day. STI has already broken the 3100 – 3120 support range and even tested the last line of defence at 3080 level. As it closed slightly lower than 3080 level, will yesterday’s action be a mere whipsaw or will STI start to turn downtrend again?

“STI formed long black candle with long lower shadow at the 20ma line. The long lower shadow signifies its reluctance to close lower as it might face some support in the market. It is quite uncertain whether 20ma is going to hold as the indicators are still indicating bearishness. If STI is to trade lower than 3056 level today and ends as a black candle, it would mean that STI will experience further downside. On the other hand, if STI were to rebound off today with a white candle, bullish reversal might be formed and whatever actions happened yesterday, it will become a whipsaw. Hence, today will be the key day to determine the direction of STI for the next few days. ”

The banks suffered a strong sell off yesterday as they might be facing the impact from the Italy’s debt issue. However, it is observed that the banks were close to their respective 20ma level. UOB is now trading at 20 and 50ma level which could provide a strong support for UOB. Holding at this level is important for it to maintain its uptrend formation. The offshore were also suffering from the bearish sentiment yesterday and most of them gapped down during the opening. Sembcorp traded lower than the 20ma line but is held by the 200ma line could be supported at this level.

The properties confirmed their bearish reversal formation yesterday and retracement tone is set for them. However, most of them are trading at 20ma line and could be supported by this 20ma. It is interesting to see that Kepland formed a dragonfly doji exactly at the 20ma level which could signify that the 20ma is holding well. The commodities were also not spared from the selling sentiment yesterday. Straits Asia, Golden Agri & Wilmar were seen to retrace back to their recent breakout level and managed to close at that level. 3 of them even managed to test their respective 20ma levels and bounce off from that level. This shows that their supports were holding well.

In conclusion, the selling sentiment might not have ended for STI today but it is clearly seen that downside might be getting limited as various sectors are now trading at a good support level. Majority of the sector stocks formed lower shadows at their support level signifies that their support levels are holding. Therefore, I do not expect heavy selling to occur today. Instead, there is a chance of bullish reversal formation today. Furthermore, as there are numerous gaps formed yesterday, there is also a good chance that STI might rebound to cover the gap. The banks, properties and commodities are the key sectors to watch if their respective MA support levels are holding well; Failure to do so will result in further selling pressure to occur. Hence, although, the prices now are more attractive to long traders, some risk have to be taken to enter long positions right now as the formation of uptrend is very shaky right now. Shortist might want to reduce their short exposure and to avoid shorting as the downside is very limited right now. Going cautious should be a right strategy right now.