STI in consolidation mode.

Last week, STI managed to bounce off 2735 level attempting to close the gap at 2798 – 2831 level. This rebound caught many by surprise as many were expecting STI to trade lower. This bullish sentiment continues to maintain till last Thursday. However, on last Friday, STI started to fray when Europe market opens in red. This caused trader to flee the market to seek for safety as many were worried of further sell off could be seen after the weekend. Indeed, US market closed 303 pts down during their Friday trading session as European debt concerns still lingers in the market.

How will STI react this week? Will all the gains that it had achieved this week be wiped out after a strong drop by the Europe and US markets?
Let’s get the answer from the chart.

 

Trend: Sideways, 20ma flat, MacD below 0

Support: 2800 (20ma), 2740, 2680, 2650

Resistance: 2880, 2930, 2970 (50ma)

Observations:

Candlestick – Black candle confirming the white hanging man.

Histogram – 1 R. No Bullish divergence.

RSI – At 60%. No Bullish divergence.

Stochastic – Around 70%. No bearish crossover yet.

Bollinger Band – Band squeezing. Mid band turn flat.

Conclusion:

After STI tested 2880 resistance level the previous week, STI failed to trade higher than 2880 level and retraced. This price action indicates that STI might be forming a sideways trend. However, STI did not test the previous low of 2680 level; instead, it bounced off at 2740 support level which might have created a higher low. Further morning, as higher low is being formed, a higher high should be seen. However, last Friday, STI failed to continue to trade towards 2880 level and retraced to form a possible lower high. These price movements are creating some confusion on the current trend of the market. Is STI currently uptrend, downtrend or sideways?

The best way to confirm the current trend is by analysing the indicators. Currently, the trend indicators are indicating that STI is currently trading as a sideways but with some bearish underlying because MacD is still below 0. As the trend is sideways, STI might be trading in a very narrow range which could cause short term indicators to fail. Based on the candlestick formation, bearish reversal has been confirmed with bearish signal from the histogram; hence, it is likely to cause some selling action on Monday. However, Stochastic is still not clearly showing the bearish movement yet. Hence forth, the indicators might not be giving a very clear direction of what is likely to happen this week.

As the trend is more likely to be sideways, one can expect STI be trading within the range of 2680 – 2880 levels. Based on current price level STI is in, STI is closer to the upper range and therefore its upside could be limited. With possible short term bearishness based on the indicators and candles, STI is likely to start the week with selling pressure. 2800 support level which confluence with 20ma might provide some support for STI, but based on last few week’s price action, 2800 seems to be a very weak level. Therefore, the alternative support for STI would be 2740 level. This 2740 level created a higher low formation last week; hence, it will be more likely to hold STI if selling pressure sets in. If 2740 support level fails to hold, we shall see 2680 to be tested again. 2680 would be the key support level for STI to retain its sideways trend.

In conclusion, STI is now trading in a consolidation mode after the big plunge. It is likely to continue to consolidate before further downside would be seen. The consolidation range is likely to be between 2680 – 2880 levels. With analysis from the indicators, it is still unclear whether STI will continue its downtrend movement or will it remain as a sideways for this week. In short term, STI is expected to trade lower for the early week. 2740 support level is to be expected to be tested again. If 2740 level fails to hold, we shall be looking at 2680 support to be tested before further expectations can be made. Henceforth, more volatility is to be expected in the sideways environment and selling pressure is to be expected for this week as the underlying downtrend is still intact.

Long traders might want to clear their long positions as prices are expected to fall for this week. Patience is needed as the trend is still not yet uptrend. Strong support levels can be watched for a quick counter trend trade. Shortist might be excited to see a good opportunity for shorting. However, Shortist must be reminded that the sideways trend might still be consolidating and any downside could be limited. Cautious shorting trade sizes should be practised to avoid unexpected volatility.

What to watch out for this week:

1)      Testing of 2880 resistance level.

2)      Breaking of 2800 support level.

3)      Breaking of 2740 support level.

4)      Testing of 2680 support level.

Trading strategy to adapt right now:

-          Stay aside.

-          Close long positions.

-          Take short positions cautiously.

*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.