Daily Market Outlook for 14-Jul-2011

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“After a strong sell down on the previous day, STI managed to inch up a little yesterday, breaking the selling momentum. It had managed to close above 3080 level which as the important support level to hold in order for it to have chance to turn uptrend. After the opening, STI continued to experience selling pressure but bargain hunters flock into the market to push the price up. This buying sentiment even pushes STI to 3100 level before selling sets in again. Hence, STI closed at 3088 level which is 11 pts up from the previous day. Trading volume, however, was not very robust as many still carry to choose a cautious approach to the market. Will STI reverse today to confirm the higher low formation? ”

STI formed a bullish harami pattern yesterday. This formation is currently constricted between 20ma and 50ma line. Both the long upper and lower shadow shows that both support and resistance levels are holding. To confirm this bullish reversal pattern, STI must be above to trade above 50ma and even 100ma which is around 3098 & 3108 levels respectively. A gap resistance between 3103 – 3116 levels might also constrict STI’s upside. Based on the indicators, there are no clear bullish signs yet but Stochastic is starting to show signs of weakening in bearishness. Therefore, STI might be struggling to break the MA line & the gap resistance today. Bullish reversal might not be confirmed.

The banks held well at their respective support levels well yesterday. UOB even formed a bullish reversal pattern which indicates that the support at 20 & 50ma is holding well. Both UOB and Ocbc even formed a bullish crossover in the stochastic indicator. Hence, holding at their support level is to be expected for the banks today. The offshore also attempted to rebound yesterday but failed to perform a strong rebound. Buying strengths were weak as they still experience some selling pressure. Sembcorp which is trading at 200ma line formed a bullish reversal pattern which indicates that 200ma is still holding well. It must hold at 200ma to maintain its midterm bullishness.

The properties managed to hold above their respective 20ma line yesterday with bullish reversal formation. Kepland had a one white soldier formation but it closed exactly at the gap resistance level. Breaking this gap resistance level would increase its chance of continuation of its uptrend. The commodities were also able to hold its support levels well yesterday but their rebound were lacking of strong buying actions. Both Olam and Noble grp were struggling to trade for a lower low yesterday as they continue to have trouble trading above their 20ma levels.

In conclusion, the bullish reversal that is being formed yesterday has proven that STI is still holding well at 3080 support level. However, its upside now is capped by the MA lines and the gap resistance. Any buying strong within the day could be countered by sellers at the resistance level. Unless STI convincingly breaks both levels, then STI will have a good chance of turning uptrend. Otherwise, STI will continue to face a tough struggle at current levels. To be able to break these resistance levels, the bank and properties sectors must trade bullishly today. Trading strategy must continue to remain cautious during this uncertain period. Long traders might want to continue to take some risk to enter long position but one must be prepared to take profits quickly or even cut loss quickly if the market does not rebound accordingly. Shortist should continue to reduce their short positions so as to reduce the risk of rebound.