Daily Market Outlook for 22-Jul-2011

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STI had a fantastic bullish strength yesterday as it managed to carry on it bullishness by closing 11 pts higher. Although STI had a weak opening and bearish morning session, it managed to counter the bearishness before market closes. Yesterday was the 3rd day that STI manages to close higher. Currently, it is trading closer and closer to the anticipated resistance level formed by the recent high. As DJI had a strong closing yesterday, many will guess that STI is likely to gap up higher today. Will STI be able to break the previous high today?

STI formed a long white candle with lower shadow again. Its lower shadow formation has yet again proves that the support from the 3 MA lines is holding strongly as price failed to trade below it. However, STI closed exactly at the 200ma resistance which might be a sign that it might have trouble breaking it. Its previous high bases on the upper shadow of the period stands at 3164 level. If STI manages to break 3164 level, it would indicate that STI has confirmed its uptrend continuation and will be heading towards next resistance level of 3180 level. The short term indicators continue to stay bullish and therefore, bullish strength might continue. However, it is good to note that Stochastic is now trading in the overbought zone which can indicate that upside strength can get more and more limited.

The bullish strength for the index came from strong bullish movement in the banking sector. Uob and Ocbc had a breakout of its previous high level. Hence, both of them would be seeking for the next level of resistance. Uob’s resistance is now around 20.40 level while Ocbc’s resistance is now 9.86 level. As DBS did not breakout yesterday, it might do a catch up today by breaking its resistance around 15.00 level. The offshore continues to trade sluggishly as they attempt to break their resistance level. Kepcorp reported its good earnings yesterday could bring some boost to this sector today. As Kepcorp is facing 20ma resistance level yesterday, the earnings report can encourage a clear break of the 20ma resistance before it can head towards its immediate resistance of 11.04 level.

“The properties continue to underperform the general market yesterday as continue to struggle with the selling pressure. Only selective stock like Citydev and F&N enjoyed the bullish strength by trading higher. Citydev which closed exactly at the 20ma level, triggered a bullish signal and it upside is likely to continue towards its previous high of 10.95 level. The commodities ended mixed yesterday as market participants were unsure of whether their bullish strength is sustainable. Indoagri which has been trading sideways for a while, starts to show a tight trading range from 1.51 – 1.63 level. Its Bollinger band is getting narrower this time. Hence, it will be interesting to watch out for a breakout action anytime soon. ”

“In conclusion, STI’s bullish strength was only boosted by strong performance from the banks. The rest of the sectors traded either slightly higher or mixed. As pointed out for the past few days, the rest of the sector, apart from the banks, must also show bullishness before we can conclude that STI’s bullishness is sustainable. Offshore and properties are showing good signs of bullishness but they require greater bullish strength by trading above their 20ma level. Once they are trading above the level, its bullish strength is more likely to be sustainable. STI is likely to test its previous high of 3164 today as long as the banking sector remains bullish with some bullish support from the rest of the sectors. There is also a chance for STI to breakout today if the offshore and properties exhibit strong bullish actions. Long traders would be rejoicing currently as they are in the money. However, they must be prudent to watch out for any bearish candle formation as the upside is getting limited. The strategy now is to avoid chasing the prices and think about reducing exposure. Shortists have to continue to stay sideline as the market trend is not on their side.