Daily Market Outlook for 10-Aug-2011

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STI continued to drop like a stone on Monday as fears continues strike everyone’s mind. STI closed 110pts down mimicking the amount of drop on last Friday. Despite DJI closing up on Friday, Monday’s drop was primary due to the confirmation of downgrade in the credit rating for US. The whole day was full of fear as traders and investors were rushing to get out from the market despite the fact that the market had dropped quite significantly. However, before closing time STI managed to bounce off from the day’s low of 2847 level before it closes at 2884 level. This concludes STI’s market action in preparation for the national day holiday. Last night, DJI manages to regain a significant amount of its losses overnight as it closes 429 points up. This should bring some confidence to the bargain hunters to come into the market to support the prices and probably helps to trigger a technical rebound.

STI formed a long black candle with long lower shadow on Monday. This candle formation express that market is in a bearish sentiment that day but its lower shadow formation shows signs of refusal to break the support around 2890 level. Looking at the indicators, the MacD line is now trading below the zero level and this confirms that STI is now in a downtrend momentum. The Histogram and Stochastic remains bearish. However, Stochastic is now showing oversold with a possible bullish crossover. RSI have entered the oversold region too. Therefore, downside could be getting limited for now.

The banks continued their free fall on Monday and ended the day with a long black candle. All the banks failed to hold at 200ma support and are now trading below 200ma. This could indicate that they might be going for a longer term downtrend. 100ma could be their possible resistance is a technical rebound happens. The offshore had a strong gapped down on Monday and ended the day with significantly long lower shadows. Their lower shadow formation might be formed because they are testing a strong support level. The offshore might continue to test its support level today.

The properties, similarly, continues its downward movement after their key support level were broken last week. Most of them ended the day with a long lower shadow which might signify their refusal of dropping lower. They might be able to find a good support level to form their lower low formation. The commodities extend their losses as they failed to find a foothold in the market. Indoagri and Noble grp continued their downtrend movement and still yet to show signs of support holding.

In conclusion, STI had indeed experience a euphoric situation of fear due to the shock from the downgrade of US’s credit rating over the weekend. Selling is in the minds of many traders while bargain hunters were fearful of buying. This created a spiral effect of price dropping drastically over the past few days. There are some signs of the drop weakening as indicators are starting to indicate oversold scenario. Overnight strength in DJI might bring some bullishness to the market but it was only after a big drop on Monday night. Hence, it could have little impact on STI’s market today. If STI is to catch up for the lost of yesterday’s trading session, STI might turn out to be trading flat today. Therefore, STI might be halting its downtrend movement today and might even set itself up for a formation of a lower low. As high volatility is expected, it will be best for traders to stay sidelines. Long trader might be very tempted to go for a long position due to oversold situation. It will be best to patiently wait till a bullish reversal is formed before going against the trend. Shortist might continue to hold their short position till a bullish reversal formation is formed.