Daily Market Outlook for 21-Jul-2011

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“In reaction to strong DJI’s closing the previous day, STI gapped up strong during the opening. However, some traders were not convinced in the morning and decided to take the opportunity to clear their positions. The selling pressure during the day did not stop the bulls to continue their buying strength which caused STI to close 30 pts higher. This bullish action during the day was accompanied by strong trading volume which most likely had confirmed the breaking of the gap resistance. Despite such convincing movement, many are still worried on whether this bullish action will be sustainable or not. Can STI’s bullish momentum stay? ”

STI formed a white candle with long lower shadow again, but this candle is different from the previous day as with a gap up. The long lower shadow can be seen as a price movement to close the gap or it can be seen to confirm the resistance turn support from the 3 MA lines. Hence, a new support level might be formed at 3100 level. The gap resistance which was pointed out yesterday was also breached by yesterday’s action. Therefore, yesterday’s action implies that it will be heading towards 200ma or even the recent high that STI had formed. The price action also confirmed a higher low formation in the chart. Hence, uptrend continuation could still be intact. The indicators continued to show bullish sentiment which should support further upside for STI.

“The banks continued their bullish strength as they started to test their previous higher high level. Breaching the higher high would mean that the banks will continue their uptrend. DBS & Ocbc might find this higher high hard to break as it will be a tough resistance level to break. Some selling pressure should be expected to be seen for these 2 banks today. The offshore managed to perform bullish yesterday despite their struggle the previous day. Sembcorp, which have trouble breaking the MA resistance, managed to break the resistance with high volume. It could be heading towards its previous high for this few days. ”

The properties were trading mixed yesterday as they continue to struggle to find reasons to be bullish. F&N is the only one showing strong buying strength as it now manages to trade above both 50 & 100ma. Capitaland on the other hand suffered selling pressure during the day causing it to close slightly below its 20ma line. Hence, the properties might remain sluggish for this few days. The commodities joined the bullish crowd yesterday as they managed to close higher. As pointed out yesterday, both Noble grp and Olam had a bullish reversal formation. Yesterday, they managed to confirm the reversal by trading higher. Hence, it is likely that they might continue to head towards the declining 20ma level.

In conclusion, with such strong performance in STI, STI is more likely to continue its bullishness towards 200ma or even its previous high. Most of the sectors contributed to the bullishness with exception from the properties. Offshore and commodities’ might still have some upside room for them to achieve but for the banks, they might face some selling pressure as they are testing their resistance level. The properties might still be a drag for STI as most of their bullish reversal formation did not achieve confirmation. Therefore, STI might not be experiencing strong bullish movement today which is likely to be a mixed day today. Long traders whom have entered long position might be eager to take profit after experiencing such a strong bullish movement. If that is what one is experiencing, it will be wise to think about taking partial profit instead because the underlying strength of the market is bullish and more might yet to come. Shortist might be disappointed as the resistance level is broken. Hence, it will be best for Shortist to stay out from short positions for now.