Daily Market Outlook for 4-Aug-2011

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Yet again, STI plunged deeply after DJI had one of biggest drop in a day. STI gapped down 46 pts during the opening triggering panic selling during the early trading session. STI traded as low as 3111 level where it tested the 50 & 100ma line. Before closing, STI rebounded as short covering started to happen. The intraday rebound reached as high as 3139 level where it tested the 20 and 200ma as resistance. It was a day of higher trading activities as there is a mixture of bulls and bears in the market yesterday. As stated yesterday, 3110 level is the key support level where the fate of STI’s uptrend will be decided. Will STI rebound off 3110 level today or will it continue to test 3110 level?

After an evening star formation, STI gapped down strongly yesterday and ended its day as a doji formation. Doji signifies that STI is indecisive yesterday as there is a stale mate between the bulls and bears. The upper and lower shadow that are formed yesterday also indicates that STI have trouble trading out of the range created by the 2 sets of MA lines, namely, 50 & 100ma (acting as support) and 20 & 200ma (acting as resistance). The short term indicators states that STI is still currently in a bearish momentum and is likely to continue its bearishness for today. Therefore, STI is likely to test 3110 support level again. As 3110 is a strong key support level, it is quite unlikely that it will break today. However, there is also a chance of STI rebounding to cover the gap that is created yesterday. For today, the upside might be capped by 3140 level which it has trouble breaking it yesterday. If STI managed to form a white candle formation today, then, there will be a higher chance that STI might rebound higher to close the gap.

The banks confirmed their bearish reversal candle by gapping down yesterday. DBS and UOB were seen testing its 20ma line and refused to trade below it. DBS ended the day with a dragonfly doji which could signify a possible bullish reversal to happen. Therefore, one can expect the banks to rebound to at least cover the gap that is being formed yesterday. The offshore did no fair well yesterday as their respective MA support level did not manage to hold. Despite the bearishness, it is encouraging to see formation of white hammers in Sembcorp and Sembmar. These white hammer formations could trigger a bullish reversal for both of the counters.

The properties confirmed their bearish reversal signal and failed to maintain their bullish strength. Capitaland failed to hold its recent higher low and broke its support level yesterday. This would mean that Capitaland might be heading towards 2.74 level. The commodities also failed to avoid the selling pressure yesterday as most of them gapped down during their opening. However, almost all of them managed to regain their foothold by closing higher than their opening. This means that they closed the day with a white candle formation. Numerous counters even closed with a white hammer. This signifies that the commodities’ support levels are holding well and a possible rebound might even happen. Only Straits Asia might have a problem rebounding because it ended the day with a long black candle.

In conclusion, STI’s strong gap down yesterday might have caused a lot of panic in the market. However, because of this gap down, it might have attracted quite a lot of bargain hunters into the market. Furthermore, STI is also trading very close to the key support level of 3110, it is no doubt that people might rush into the market to support the level. It has been observed that numerous sectors ended the day with a white candle formation or even a bullish hammer formation. These observations will greatly increase the chance for STI to perform a rebound despite bearish reading from the indicators. However, 20 & 200ma might create resistance for STI to go higher today as STI had trouble breaking them yesterday. In order for a clear rebound to happen, STI must trade higher than 3140 level before it can clearly close the gap that was created. Long traders might want to make use of this bargain price to get long positions in order to ride this possible rebound. Shortist might have already enjoyed the fruits of shorting and it will be wise not to be greedy by closing off the short positions.