STI poised for downtrend again

STI failed to hold itself at 2740 support last week as the results of the FOMC meeting disappointed the market. The Fed was lacking of new stimulus tools and even hinted to be prepared for a possible recession scenario. That caused the market to lose its confidence and send the market plunging downwards. STI stayed resisted by 2800 resistance level and even broke 2740 support level after the FOMC meeting. 2680 support level was then tested last Friday and it manages to stay above 2680 support before market closed. Market participants were now expecting the prices to fall further as worries of the Europe debt issues escalate.

Can STI hold itself at 2680 support level this week? How low can STI goes down further?
Let’s get the answer from the chart to decide how STI will fair for this week.

 

Trend: Sideways, 20ma flat, MacD below 0

Support: 2580, 2650, 2680

Resistance: 2740, 2800 (20ma), 2880 (50ma)

Observations:

Candlestick – White candle with lower shadow.

Histogram – 2 Rs. No Bullish divergence.

RSI – Around 40%. No Bullish divergence.

Stochastic – Around 30%. Bearish crossover formed.

Bollinger Band – Squeeze starting to open up. Mid band starting to turn down.

Conclusion:

STI started last week with a gap down after the over the weekend reaction of US market’s drop. The gap was eventually closed the next 2 days when the market speculated that there will be a good stimulus package by the Fed during the FOMC meeting. However, the expected good news did not happen and caused STI to plunge quickly on Thursday. The selling sentiment caused STI to break 2740 support level and that indicates that STI will be heading towards its sideways support of 2680 level. Last Friday, STI broke 2680 support during the day but bargain hunters enter the market to support 2680 level. Eventually, the sideways trend was not compromised.

 The price movement last week has confirmed that STI had formed another lower high formation. Furthermore, last Friday’s drop also indicates a possible lower low formation as 2740 support level was broken. The downtrend cannot have confirmation yet as STI has yet to trade lower than the weekly low of 2680 level. Therefore, 2680 support level is the key level to determine whether STI will have more strength to drop further. As STI closed slightly above 2680 support level, one will wonder whether this support level will hold. Hence, the indicators should give some hints of the possibilities.

The mid-term indicators for this week are still indicating sideways trend. However, the MacD might trigger a bearish crossover which will indicate a bearish mid-term trend to be happening. Hence, weakness is starting to be shown for the current sideways trend. The short term indicators were showing bearishness last week and are likely to continue for this week. However, last Friday’s candle was a white candle with lower shadow at the support level of 2680. This indicates that the support level has a good chance of holding and rebound is likely for this coming few days.

Therefore, STI might have a good chance of a technical rebound if Friday’s white candle formation is being confirmed. If the rebound is confirmed, STI might be rebounding towards the small gap between 2705 – 2714 levels; or even rebound to test the support turn resistance level of 2740. Breaking of 2740 is unlikely as the short term indicators were bearish. On the other hand, as the short term indicators are indicating bearishness, the bearish momentum might prevent the rebound and cause STI to break 2680 support level. If that happens, STI might be testing the next support level of 2650 before a possible rebound for lower low formation can happen.

In conclusion, STI has much higher chance of forming downtrend currently as the conditions for causing more selling pressure are now seen. Confirmation of downtrend will happen if the immediate support level of 2680 fails to hold. Although there is expectation of a possible rebound to happen for this week, this rebound is likely to be a small one. Any rebound will be capped by the gap resistance of 2705 – 2714 levels or even 2740 resistance level. This can be a good opportunity to initiate a short position. Chances of breaking 2680 level are also high as the indicators are not indicating any weakness in the bears. Therefore, one can expect STI to confirm its downtrend and fall towards the next support level of 2650 before any proper rebound can happen for this week.

Long traders have to continue to avoid going on the long side as the market is now on the shaking grounds. Although STI is now trading at a good support level, the upside potential might not give a good risk and reward. Therefore, staying sidelines will still be a good approach for long traders. Shortist might be enjoying the current ride downwards. Adding new short positions currently can be a little late, but any minor rebound can be a good shorting opportunity. Do take partial profits when targets are met.

What to watch out for this week:

1)      Breaking of 2680 support level.

2)      Testing of 2705 – 2714 gap resistance.

3)      Testing of 2740 resistance level.

4)      Testing of2650 support level.

Trading strategy to adapt right now:

-          Short on rebound at resistance level

-          Close long positions.

*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.