Here we go again. Same old bear again!

The expected technical rebound happened last week giving some hope for investors to flee from the market. However, the rebound was short as it did not manage to break 2890 resistance level to close the gap between 2942 – 2973 levels. The expectations for the rebound fell short. Bearish reversal formation was formed last Tuesday which was created by the fear in the Europe market. Numerous days showed bullish strength but was suppressed by the bearish sentiment in the Europe market. On last Friday, STI gapped down again after a big overnight drop in the US market triggered by fears of recession happening in US.
Because of Friday’s gap down, fear flood the market again. Many feared to guess where the bottom is and decided to be safer staying sideline. Will the bear continue to dominate STI this week? At which level will STI find a support?

Let’s get the answer from the chart.

Trend: Downtrend, 20ma pointing down, MacD below 0

Support: 2680, 2650, 2600

Resistance: 2740, 2800 (Falling window at 2760 -2816), 2890

Observations:
Candlestick – Black candle with little shadows.
Histogram – 4g1r. No Bullish divergence.
RSI – Around 20%. Oversold. No Bullish divergence.
Stochastic – Around 30%. Heading towards oversold. Bearish crossover triggered last week.
Bollinger Band – Closer to lower band.

Conclusion:
STI had successfully tested 2890 as resistance last week but failed to break it. As the bearish reversal signal was being confirmed last week, STI formed a lower high formation which indicates its possible downtrend continuation. Friday’s gap down has caused 2 support levels to be broken as now these support levels have turned into resistance. The gap down also created another gap resistance between 2760 – 2816 levels. Hence, any rebound by STI currently will face a strong resistance at around 2800 level. Let’s analyse the indicators to determine the chances of rebound for this week.

The trend indicators continue to show signs of downtrend without any bullish divergence signal. Hence, any rebound will be capped as a lower high formation. The short term indicators had indicated sell signal last week and is likely to continue with its bearish momentum. The short term indicators were not indicating any oversold condition but RSI which measure the midterm movement is STI oversold. Hence, there is still chance for STI to enjoy a deeper rebound. However, for this week, deeper rebound is still unlikely as the short term indicators are still bearish and have more room to go.

Therefore, STI is more likely to head lower this week to form a lower low formation. STI have yet to confirm a lower low as it has not break the recent low of 2720. STI might struggle to break this recent low level of 2720 this week as there might be bargain hunter supporting that level. In order for STI to go lower, it must break this 2720 convincingly. If that happens, STI should be heading towards the immediate support level of 2680. The next possible support can also be at 2650 level.

In conclusion, STI is more likely to head lower this week with expectation of slight rebound to close the gap. To confirm its further downside, it must first break its recent low of 2720. If that happens, STI should be heading towards support level of 2680 and even 2650 level. As there is a small chance of gap covering happening, do expect STI to rebound slightly towards 2760 – 2816 levels. 2800 level could be a good resistance level to end the gap covering actions by the market. Therefore, the upside for STI is definitely limited and if 2720 level breaks, STI is definitely going to head for a lower level for support.

Long traders whom did not cut loss during the rebound might have wasted a good opportunity to reduce their losses. As there is a possibility of gap covering, it will be wise to close long positions if the gap resistance level holds. Recent low level will be last line of defence to close all long positions. Entering new long positions now can be risky as the odds are still on the bearish side. Shortist must have enjoyed the ride down but one must not be complacent. As numerous counters have reached their recent low levels, it would be good to take partial profit off the table to avoid unexpected situation. Entering new short positions will not be wise now.

What to watch out for this week:
1) Breaking of recent low of 2720 level.
2) Slightly rebound towards 2760 – 2816 gap resistance. 2800 is likely to cap the rebound.\
3) Testing of 2680 support.

Trading strategy to adapt right now:
- Close long positions when gap resistance is covered or when lower low is being confirmed.
- Short when there is bearish reversal formed at gap resistance.
- Take profit for shorts when targets are met.

*Disclaimer:
This analysis is provided to you for general information only and does not constitute a recommendation, an offer or solicitation to purchase or sell the product mentioned. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of you acting based on this information. Investments are subject to investment risks.
Please consult your respective advisers.