Daily Market Outlook for 27-Jul-2011

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STI continued to stay bullish yesterday despite uncertainty in US debt limit situation by closing 15 pts higher. The US situation is evaluated as a deadlock happened between the Republic and Protestant parties whom have differences in the way of handling the debt limit issue. This deadlock caused DJI to close 91 pts lower last night. DJI’s weak closing can cause STI to have a weak opening and probably trigger a retracement for STI. Will STI start tumbling down strongly today? Or will STI go against the odds and remain bullish?

STI formed a long white candle with lower shadow again which closed slightly higher than last Friday’s high. This candle shows that STI refuses to start a higher high formation and the formation could still be forming. The indicators continue to show bullishness but Stochastic is still showing possible bearish crossover and oversold indication. Based on current price level, STI is still unable to break the major resistance level of 3180. As analysed on Monday, STI still have a higher chance of retracement to form a higher high so as the uptrend can be sustainable for a longer period. Currently, 200ma which is at 3140 level should act as a good support level for STI.

Yet again, the main bullishness for STI comes from the banking sector. The strong counter for the day is UOB. UOB managed to break its recent high and starts to trade higher. However, it has now reached its resistance level and might not be able to go higher. As for the rest of the banks, they were still unable to trade higher than their recent high. The offshore sector was also trading strongly yesterday as they managed to reverse their losses. Sembmar is the strongest of the sector as it rebounded to test its resistance level. This movement also shows that 20 & 50ma are holding well. A breakout of its immediate resistance of 5.45 will indicate further upside for Sembmar.

The properties were lack of strength yesterday as they closed mixed. F&N is interesting to look at because it is now trading at 200ma. The movement for the past few days shows that F&N is struggling to break the 200ma and might have a chance to retrace towards 20ma level. On the other hand, it might also break 200ma to head for a higher high. The commodities were also trading mixed yesterday. Noble grp which had a strong rebound for the past week continued to trade higher, however, it is now trading close to 20ma and horizontal resistance level at 1.88 level. Possible lower high might be formed for Noble grp.

In conclusion, with uncertainty still looming in the market, STI might continue to have a higher chance of retracement despite its strong movement for the past few days. 3180 resistance level is likely to hold as most of the sectors are also trading at their respective resistance levels. In order for STI to have a clear breakout of 3180 resistance level, the banking and offshore sectors’ bullishness might not be enough. Both properties and commodities sectors must start to form uptrend by breaking its previous high. Therefore, I am still expecting some form of retracement to be forming this few days. 200ma at 3140 level is to be expected to hold the STI where it can form a higher low. Long traders should be getting ready to initiate some long positions as long as a clear retracement is formed. Breakout play can be used for sectors that are showing downtrend. Shortist might have a opportunity to initiate short position today but one must be quick to take profit once the support is reached.