Daily Market Outlook for 3-Aug-2011

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STI was spooked by US’s weak economic data and possible drop in credit rating yesterday. Sellers flock the market to close their positions in fear of losing their profits. STI ended 38 pts down breaking the resistance turn support level of 3180 level. Hence, as analysed yesterday, it could possibly be heading towards 3155 level. Fresh bearish concern was further highlighted yesterday as DJI closes 265 pts down. This will definitely cause more selling to happen during the opening today. Will 3155 level be able to hold STI or does STI require another support level to hold?

STI formed a long black candle which could be a possible evening star formation. Evening star is a bearish formation which indicates that STI is in the retracement mode. The short term indicators also imply that STI is in bearish momentum and there might be more room to drop. This retracement is likely to meet the first support level of 3155 and possibly 3140 level where 20 and 200ma confluences. However, there is also a likelihood of STI even test the next support level of 3110 level where there is a confluence of horizontal support with 2 MA lines (50 & 100ma). In order for STI to sustain its uptrend movement, 3110 support level must hold or else, it uptrend will be compromised.

At last, the banks decided to retrace after a strong run upwards. UOB formed a bearish harami yesterday and should be retracing towards its 20ma support level. DBS was the worst performer as it confirmed its shooting star formation with a long black candle. Its last 3 days candle also indicates a classic evening star formation. Similarly, it should be heading towards 20ma for support. The offshore were unable to avoid the selloff yesterday. Most of them are now trading at their respective MA support level and it will be interesting to see if they are able to hold their MA support. Sembmar could be in the limelight as it reported its half year earnings yesterday. Its half year report failed to impress as it saw a fall in earnings. This might push more downward pressure on Sembmar and might be seeking 200ma (5.10) for support.

The properties failed to capitalise on its bullish momentum yesterday. Many failed to trade higher and some threaten to turn downtrend. Capitaland which has been struggling to turn uptrend, yet again, failed to break 50ma and is now trading below 20ma. If it fails to trade about 2.84 today, it might be heading towards 2.74 level. The commodities confirmed their bearish reversal yesterday which implies that they are ready for a good retracement. Olam and Noble grp are in danger of forming a lower high as their trends are still downtrend. Noble grp has the highest chance of downtrend continuation as there is lack of bullish divergence reading.

In conclusion, STI’s selloff yesterday has triggered of the long awaited retracement. This retracement will be good for the market was it is needed for STI’s uptrend to be sustainable. Possible higher low could be forming at 3140 – 3155 support levels. Alternatively, if the market is in panic selling, there is also a possibility that STI might even test 3110 as support. 3110 level will be the key support level to watch out for as failing to hold would mean the uptrend is compromised. Numerous sectors would be heading towards its 20ma level. If a bullish reversal formed at the 20ma level, it will be a good setup to enter some long positions. Therefore, Long traders might get their war chest ready to execute some long positions if there is confirmation of bullish reversal. Shortist on the other hand might want to make use of this weakness to close their short position if there is. If bullish reversal is formed, it will be wise to close all the short positions.