Daily Market Outlook for 24-Aug-2011

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STI enjoyed a rebound yesterday as positive sentiment was back to the market due to speculation of possible stimulus package for the US market. STI opened slightly higher yesterday but the morning session suffered some selling pressure. However, as the trading session draws closer to lunch time, STI starts to creep back into the positive region. Once Europe market opens, STI gains its bullish momentum from the strength of Europe market  and pushed STI strongly which broke the immediate resistance level of 2740. This bullish strength maintained till closing and STI ended 33 pts higher yesterday. Has STI hit bottom already? Or will this rebound just be a gap covering action as seen in this week’s outlook?             
              
STI ended the day as a white candle with upper and lower shadow. The candle body is quite long and this can signifies the strength in the bull yesterday. However, existence of both upper and lower shadow still brings a bit of uncertainty to the bullish action yesterday. The candle formed yesterday also shows that STI is now attempting to close the gap resistance between 2760 – 2816 levels. As the immediate resistance of 2740 is broken, STI will be seeking for next resistance of 2800 level. Hence, STI is now trading in a zone of resistance and could be capped in this range. Based on the short term indicators, the momentum seems to be changing towards the bullish side as Stochastic starts to trigger a bullish cross after it bounce off the oversold region. With that, STI’s bullish is likely to continue towards 2800 resistance level for today.              
              
The banks managed to hold well at their recent low levels as they attempted a rebound yesterday. Their candles that were formed yesterday showed long shadows. These shadows signify volatility and indecisive trading action. However, they managed to close as a white candle and could probably be a bullish reversal formation. Banks can rebound higher if these bullish reversal formations are being confirmed. The offshore that enjoyed strength the previous day did not enjoy much bullish strength yesterday. They were attempting to end the day to confirm their bullish reversal formation but it ended lack of strong confirmation as their candles ended up short. Short candles signify indecisiveness and might cause the price action for the next few days to be consolidating sideways.             
              
The properties were enjoying some strength in the rebound as they refused to go lower yesterday. F&N had a spectacular rebound yesterday but it got resisted by the 20ma line. Because of its rebound yesterday, it might have formed a possible higher low formation. F&N needs to breaks the strong resistance of 5.75 in order for it to confirm its uptrend movement. The commodities also enjoyed the rally yesterday as technical rebound was seen in the oil prices. Olam and Noble grp whom had experience a sell of the previous day rebounded strong yesterday. They might be seeking to close the gap that was formed during the past few days.                 
              
In conclusion, STI’s price action yesterday was indeed a bullish one. However, this bullishness might be capped by the gap resistance and the immediate resistance of 2800 level. Various sectors were also seen to have bullish reversal forming; this could bring some bullish strength for STI today. The properties sector enjoyed the most strength yesterday. However, if it fails to continue to be bullish and starts dropping today, it might create a drag for STI’s upside. The banks and commodities were the 2 possible sectors that could bring strength to the STI, if they will to do so; STI would not be heading towards 2800 level anymore. As STI is currently in an indecisive mode, traders should be extra cautious. Long traders might be attracted to chase the prices as there are bullish reversal signals. However, be warned that it could be a gap covering action and upside is most likely capped. Quick trades for the long side must be closed whenever there is sign of black candle. On the other hand, Shortist might see this rebound as an opportunity for initiating short positions. Any signs of black candle formation in the gap resistance will be a good entry point for shorting.