Daily Market Outlook for 16-Aug-2011

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After the confirmation of bullish reversal last Friday, STI continues its rebound towards the gap resistance. STI gapped up in the morning in reaction to strong closing by DJI on last Friday night. Although STI had a strong opening, selling pressure was seen during the first half of the day. However, STI managed to recover above its closing after lunch hours mainly due to positive opening by the European markets. The market action might seem active yesterday but the trading volume was significantly lower than the past few days. Market participants were lacking yesterday. Last night, DJI ended strongly again. Will STI continue to trade higher today?

STI formed a white star formation yesterday. This star formation indicates that the market’s bullish sentiment is getting indecisive yesterday, which also can mean that its buying strength is getting weaker. As noted yesterday, STI have a resistance level at 2890 level which could be the reason why STI struggled to trade higher yesterday. Looking at the indicators, they were still indicating bullishness and there are no clear signs of weakness yet. Stochastic is now out of oversold region while RSI is starting to trend out of oversold region too. Hence, STI is likely to continue to test 2890 resistance level before we can see a possible formation of lower high happening.

The banks successfully rebounded towards 200ma resistance level yesterday. UOB even manages to trade above 200ma and its candle’s lower shadow is hinting that 200ma is giving possible support. DBS also managed to test 200ma and traded above it during the day. However, before closing, DBS failed to sustain its bullish strength and close below 200ma. The offshore also enjoyed a sharp rebound after a sharp selloff last week. They recovered close to 6% since the confirmation of the rebound last Friday. They might continue to rebound a little bit more as they have yet to reach their resistance levels.

The properties were also showing strength in rebound yesterday as they had formed its lower low. Strong bullish strength can only be seen in F&N and Citydev. F&N’s bullish strength was due to its robust earnings that it had achieved this year. Citydev managed to test 20ma yesterday but it ended its day as a white shooting star. This shows that Citydev might not be able to break is 20ma and there is a possibility of lower high forming here. The commodities were the only sector that did not show strength in the bulls yesterday. They were struggling to trade higher as most of them ended the day as a black candle. Therefore, they might continue to see selling pressure for this few days.

In conclusion, STI might continue to trade higher today. However, upside strength is getting weaker as the resistance level of 2890 approaches. One must expect that STI to continue to test this resistance level and market actions will be lack while testing this resistance level. In the upcoming few days, there might be a risk of lower high formation. Therefore, Long traders with long positions must actively use this bullish opportunity to reduce or even close their long positions. Once a bearish reversal candle is formed, Long traders must close their long positions as such price action might form a lower high formation. So, on the other hand, if a bearish reversal candle is being formed, Shortist would have a good opportunity to initiate short positions to prepare for another leg of downward movement.