Daily Market Outlook for 2-Aug-2011

STI reacted strongly to the announcement of possible conclusion of the debt ceiling deal on yesterday morning. STI gapped up 10 pts in the opening and buyers flood the market during the day after receiving positive news from the US market. STI reached as high as 3227 level before closing at 3215 level, which is 26 pts higher than the previous day. The trading volume was strong and could indicate that the market is positive about this bullish movement. Yesterday, the possible resistance level was identified at 3210 and 3230 level. Will STI to break through this resistance level today or is it time for a good retracement?

STI formed white candle with upper shadow yesterday. This candle formation is similar to shooting star formation but its upper shadow is not long enough. Its upper shadow formation is indicating that STI is testing a resistance level and is unable to break it. STI’s price movement yesterday also created a gap between 3197 – 3204 levels. There might be a possibility that STI might attempt to close this gap today. The short terms indicators started to have some changes after yesterday’s strong movement. The MacD histogram starts to turn bullish but for Stochastic, it still remains bearish. However, Stochastic is now trending slightly below the overbought region and possible bullish cross might even happen. RSI is seen to be trading in the overbought region. STI might need a good retracement before it can go higher again.

The banks yet again were the main contributor of the bullish strength in STI. UOB was surprising strong as it reacted strongly after the announcement of the debt ceiling deal. Ocbc, which has been lagging behind the rest of the banks, decided to chase up by breaking its immediate resistance level. Despite the bullishness, the banks are in danger of having a retracement as all their indicators are now overbought. The offshore were trading mixed yesterday as they attempted to test their respective resistance levels. The offshore which have been trading sideways for numerous months will have to break their resistance levels before they can be conclude as an uptrend. It is important to watch for a clear breakout now.

The properties were the other sector that helped to push the STI higher. The properties were lead by Citydev and Kepland as they managed to bounce off from their 20ma support level to form a higher low. Kepland was the strongest of all but its candle shows that it had trouble breaking the 100ma yesterday. The commodities were trading mixed yesterday as most of them struggled with their respective resistance levels. Olam is still facing trouble breaking 50ma resistance. Noble grp on the other hand managed to stay above 20ma. Noble has to maintain its foothold above 20ma for this few days in order to have chance to turn uptrend.

In conclusion, STI’s bullishness might be getting stronger but it is getting much clearer that it is currently in an overbought situation. Chances of retracement are getting higher as the banking sector which has been pushing the index up is overbought. The rest of the sectors were still struggling to be bullish and is unlikely to contribute to the STI. Hence, if the banks failed to hold their bullishness and decide to retrace, it will more likely drag the STI down. With a weak closing by DJI last night despite the good news on the debt ceiling deal, there could be some bearish reactions to the market today. Support level for STI remains at 3180 and 3155 level. 3180 level should hold for this few days. Long traders might want to take partial profits when their targets are reached. If a retracement happens, opportunities to go long will be there. Shortist might want to go for a quick trade but it is not encouraged as the possible reward might be very limited.