Clear uptrend at last!

Last week, STI was surprisingly strong as buyers flocked to the market ignoring the fear of Europe debt issues and US debt limit. What was really surprising is that STI even managed to break the previous high of 3165 level, thus confirming the continuation of uptrend. However, numerous traders were concern of whether this bullish strength is sustainable. Numerous traders speculate that the bullish strength was mainly due to short coverings of which the bullish strength might not be sustainable. US debt limit date line, which is on 2 Aug, is also drawing closer. Hence, concerns are definitely mounting which might not give traders good reasons to chase the price higher. The question for this week is whether STI will be able to go higher or is it time for STI to retrace after such bullish movement?

Let’s get the answer from the chart.

Trend: Uptrend, 20ma pointing up, MacD above 0

Support: 3155 (3146 – 3156 Rising window, 200ma close), 3110 (20, 50 & 100ma), 3080

Resistance: 3180, 3210, 3230

Observations:
Candlestick – Long white candle.
Histogram – 4 Gs. No divergence.
RSI – Around 50%. No divergence.
Stochastic – Around 90%. Overbought. No bearish crossover yet.
Bollinger Band – Slightly out of upper band. Breakout after a squeeze.

Conclusion:
STI managed to hold the support at 3080 and formed a strong support level the previous week. The support level was further confirmed when STI managed to break the strong resistance level at 3110 level where there is multiple confluence of the MA lines. These price actions also confirm the formation of a higher low which increased the probability of STI forming an uptrend. The uptrend was further confirmed when STI managed to break 3155 resistance level which is the recent high formation. Therefore, a higher high formation is likely to be formed for STI. It is also interesting to note that this bullish strength comes along with high trading volume which can be a good factor in sustaining this uptrend movement.

The trend indicators are now showing a clear uptrend signal which implies that the underlying strength is indeed bullish. Furthermore, STI even manages to trade above all the MA lines which now could potentially act as support levels despite being resistance levels for the past weeks. Therefore, any retracement currently should be supported by these MA lines. However, the short term indicators are starting to show overbought condition which can indicate that STI’s upside is getting limited and risk of retracement is getting higher. Any formation of bearish candle for this coming week could mean a start of a retracement from its higher high. Therefore, STI might be facing a tough time at its resistance level before it can go higher.

STI closed the week around the major resistance level of 3180 level which STI could face problem breaking it. This 3180 resistance level has been tested 4 times for the past 3 months which STI had problem breaking it. Hence, in the current overbought condition, it is no doubt that STI is more likely to retrace at this level to form a higher high. However, we must be also prepared that the market might go against the odds and go higher because there is no bearish signal yet. The next possible resistance for STI to form higher high formation will be at 3210 level.

As retracement is more likely to be expected, support levels will be important for traders to capture long positions. The immediate support level for STI is currently at 3155 level which is a resistance turn support level. This 3155 support level could be a firm support level as it confluences with a rising window support between 3146 – 3156. 200ma might also play a part in helping this support level to stay. However, there is a much stronger support level at 3110 level as there are 3 MA line confluences with the support level. Hence, 3110 level is more likely to be a good level where STI can form a higher low formation.

With these analyses, the underlying strength of STI is indeed bullish and uptrend has been formed. STI is expected to scale for greater heights in the next few weeks. However, in the short term, indicators have indicated that STI is in overbought condition and upside will be getting limited. Chances of retracement are getting higher and higher high formation should be forming. As 3180 resistance level is proven to be a strong resistance level. It is more likely to see STI to form a higher high for this week. Therefore, selling strength could be seen for this week towards support of 3155. The lowest level that STI can retrace should be 3110 level.

The strategy for this week will be bias towards the long side as the market has confirmed its uptrend formation. However, as the prices have already increased significantly, we should wait for a good retracement to be formed before we enter any long positions. Identification of support levels where higher low can form is needed to be done. Enter long positions if there is any bullish signal being triggered.

What to watch out for this week:
1) Retracement to 3155 support.
2) Retracement to 3110 support.
3) Breaking of 3180 resistance and test 3210 resistance.

Trading strategy to adapt right now:
- Initiate long positions when it is at support level.
- Close short positions when support level is reached.

*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.