2 Aug US debt ceiling is drawing closer. Will STI survive?

Last week was a fantastic week for STI as STI manages to stay above 3180 level despite many attempts to trade below it. For most of the days during last week, STI had weak opening due to weak closing by the US market. However, the weak openings were quickly recovered as bullish buyers kept on supporting the market. All these happened despite the fact that there is still uncertainty due as US debt ceiling issue have not come to a conclusion yet. STI still managed to close 6 pts up for the week. As STI did not managed to have a clear retracement last week, many are wondering if the retracement has already been done or yet to happen. More people were also worried about US debt ceiling issue where conclusion must be derived by 2 Aug this week. Therefore, should we carry on to stay cautious or is it the best time to end the market?

Let’s get the answer from the chart.

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

Support: 3180, 3155 (3146 – 3156 Rising window, 20 &200ma close), 3110 (50 & 100ma)

Resistance: 3210, 3230

Observations:
Candlestick – Doji like candle.
Histogram – 2 Rs. No divergence.
RSI – Around 70%. Not in overbought yet. No divergence.
Stochastic – Around 80%. Overbought. Bearish crossover already formed.
Bollinger Band – Closer to upper band. Band opening up.

Conclusion:
STI had clearly broken 3180 resistance level last week as the market failed to close below it despite numerous attempts. As 3180 resistance is broken, it will now turn into a support level. Trading volume for last week is also rising which can indicate that trading interest is coming back into the market. Therefore, there might be a chance for STI to carry on its bullishness towards the next resistance level. As indicated last week, STI’s next resistance after 3180 level will be at 3210 level. 3210 level might be a good level for STI to form a higher high formation. To be able to conclude that, let’s analyse the indicators first.

The trend indicators continue to indicate that STI is in an uptrend now and there are no signals of weakness via the divergence signals. RSI is still healthily below its overbought range after it had clearly bounced off from the 50% level. More bullish upside might be seen in the RSI. The short term indicators, however, is telling a difference story. Last Friday, the Histogram and Stochastic had confirmed their bearish signal which can indicate that there might be some selling strength in the short term. Therefore, a short term retracement might still happen but as the underlying trend indicators are bullish, support levels should hold well.

As STI manages to break 3180 resistance level last week, 3180 resistance level will turn into a possible support level. Based on the candlestick actions for last week, it is shown that STI refused to break 3180 level. Hence, such movement will make 3180 support level a stronger support level. Since the short term indicators are indicating bearish momentum, STI might continue to test 3180 this week. If 3180 level fails to hold this week, STI will most likely head towards 3155 level as support. 3155 will most likely be a strong support level as the rising 20ma and 200ma is close to its level.

We also cannot rule out the fact that STI might be doing a “sideways retracement” last week. If this is so, STI might be ready to head for a higher level. The immediate resistance for STI is at 3210 level which was pointed out next week. As STI is now trading close to that level, it is also likely that STI would test this resistance level this week. However, if the US debt ceiling issue have a positive conclusion, STI might even have a good chance to head towards 3230 as the next resistance level.

As current situation seems to be either bullish continuation or retracement, a clear retracement is still more preferred for a better uptrend setup. However, last week’s price actions could have indicated that it is more likely to continue its bullish movement for this week. On top of that, over the week end, rising of US debt ceiling is more likely to happen as the congress start to review more details of the debate. Hence, we might be seeing STI to at least test 3210 on Monday before approaching the next resistance of 3230 level. 2 Aug will be the key day to decide whether STI will be able to break the resistance level and continue its uptrend movement.

Staying on the long side will be the best strategy to adopt right now. Entering positions based on breakout will be useful for this week as there is no proper retracement for the market. Shortist whom have short positions have to watch their stop loss level as any breakout on the upside can be a fast and treacherous one.

What to watch out for this week:
1) Testing of 3180 support.
2) Testing of 3210 resistance.
3) Retracement to 3155 support.
4) Breaking of 3219 resistance and test 3230 resistance.

Trading strategy to adapt right now:
- Initiate long positions when there is a breakout.
- Close short positions when cut loss 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.