Daily Market Outlook for 17-Aug-2011

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STI failed to continue its bullish streak yesterday despite a bullish performance by DJI the previous night. STI opened close the resistance level of 2890 level and tested it in the early morning trade. However, the gains were unable to sustain and STI came dropping lower when the European market was able to open. When the European market opened 1 -2% lower, STI came crashing down reversing the gain that was achieved the previous day. STI ended 41 points down yesterday. Will STI continue to go lower today? Has the lower high been confirmed after yesterday’s movement?

STI formed a bearish engulfing formation yesterday. This bearish formation is a one of the strongest in terms of strength of its bearishness. As this formation is formed at 2890 resistance level, it signifies that this resistance is firm and is preventing STI from going higher. However, looking at the indicators, the underlying momentum is still bullish and yet to show signs of weakness yet. Stochastic is now way out of the oversold zone but RSI is still struggling to be above the oversold region. Therefore, if we see STI trading lower than yesterday’s closing today, we will likely to see STI to carry on to go lower and the lower high formation would be confirmed. On the other hand, because of underlying bullish momentum, we might not be able to see STI trading lower but trading close to the current resistance level of 2890.

The banks failed to continue their winning streak yesterday as the fear in European market shivered the traders. UOB has now failed to trade above 200ma and closed below 200ma. DBS failed to break 200ma yesterday and close the day lower confirming the white shooting star formation. DBS is more likely to go lower now. The offshore too suffered heavy selloff after European market opened. Most of the offshore counter ended the day with bearish reversal formation and is likely to go lower if there is confirmation. Kepcorp tested the resistance level at 9.62 and failed to break it yesterday. It ended the day with a dark cloud cover formation and a possible bear flag. If Kepcorp close lower than 9.11 today, it would have confirmed its bearish formation.

The properties were also lack of bullish strength as they failed to trade higher yesterday. F&N and Citydev which had been enjoyed strong bullish strength failed to close higher and had their previous day’s gain wipe out by yesterday’s bearish price action. Both F&N and Citydev ended their day with a bearish engulfing formation. The commodities which were lack of bullishness for the past few days were not spared from the selling pressure. Noble grp got the worst hit as the market’s selling pressure forced Noble to close its gap support. Indoagri ended its day with a bearish engulfing pattern and a possible bearish flag formation. Any further selling pressure today will mean more downside for the commodities.

In conclusion, STI might not be able to continue higher as it faces resistance from 2890 level. Situation might worsen as DJI did not have a bullish closing yesterday. Hence, STI might not be able to sustain its bullish strength for today. As the indicators were still showing bullish momentum, we might not see strong selling pressure today. If STI fails to stay above yesterday’s low of 2828, one should expect more selling to come into play. Therefore, Long traders are encouraged to close long position due to the risk of lower low being formed and avoid going long till an oversold situation being formed. Shortist should be thriving in current situation as it is now a good setup to initiate short positions. Shorts should be initiated when there is confirmation of the bearish reversal formations.