Daily Market Outlook for 12-Aug-2011

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STI extend its losses yesterday due to lack of bullish catalyst from the DJI the previous night. However, its drop is not as heavy as the previous days which might show some signs of weakening in the selling pressure. Although STI closed around 25 pts down, STI had even reached as low as 2720 level before recovering to its closing price yesterday. The intraday rebound was quick and fast, mainly boosted by strong opening in the Europe market. Will STI rebound to form a lower low formation? Or will it consolidate sideways?

STI formed a short black candle with long lower shadow. This candle formation can be considered as a black hammer formation. Black hammer is a bullish reversal formation which could imply that STI has already reached a support level and might be ready for a rebound. The short term indicators continue to show bearish signs but Stochastic is showing a possible bullish crossover. The indicators also show its oversold condition and chances of rebound are getting higher. With these indications and STI tested the support level at 2740 level, STI should have a rebound towards 2800 resistance level or even 2880 resistance level.

The banks managed to bounce off from its lows despite selling pressure during the day. UOB and DBS even managed to close as a white candle which forms bullish reversal candle. Therefore, they might be rebounding towards 200ma to test it as a resistance level. The offshore continue to contribute bearishness to STI as they have the heaviest drop yesterday. They were down more than 3% yesterday but it could be worst. The offshore managed to bounce off from its low and ended its day as a black hammer formation. Rebound is also likely to happen for the offshore.

The properties were quite reluctant to trade lower yesterday as they did not trade significantly lower. They were similar to the other sectors as most of them ended its day with longer lower shadow. Hence, lower low formation is also possible for this sector. The commodities held pretty well yesterday as they did not end significantly lower yesterday. Hammer formation were also seen in various counters in the sector. Indoagri and Noble grp even ended their day as white hammers. They have higher chances of reversal for a rebound.

In conclusion, STI had, at last, show signs of bullish reversal which might lead STI for a rebound. All the various sectors had similar reversal signs and hence, it is quite likely that STI will be going for a good rebound. If this bullish reversal is being confirmed, STI should be rebound towards 2800 resistance level or even reach 2880 resistance level before a lower high could be formed. With these evaluations, Long traders might want to enter long positions when there is confirmation of bullish reversal signals. However, entering these long positions would be trading counter-trend, therefore, one should be prudent to take profit quickly once the profit target is reached. Shortist on the other hand might want to make use of this opportunity to reduce their short positions while maintaining some core positions to remain on the short side.