Daily Market Outlook for 27-Sep-2011

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Yet again, STI maintained it losing streak and dropped 44pts yesterday. A wide spread of panic selling was seen throughout the market as traders and investors left the market to avoid further risk. The risk of a market meltdown again after the US and Europe market failed to resolve their respective economic issues last week. Greek’s debt issue was in the limelight again as it is running into default next month. Leaders in Europe gathered to discuss in measures to contain the current problem. STI reacted strongly in the morning session by gapping down. However, more selling pressure happens as the day goes by and STI even hit a low of 2627 level. Thankfully, short covering was seen when Europe market opens with a positive note and caused STI to recover back to 2654 level.               
              
Yesterday, STI closed as a long black candle which engulfs the previous day’s white candle. It even closed below Friday’s low and thus, 2680 support level is broken. This bearish move tested 2650 support level which was threaten to be broken yesterday but was eventually being supported by Shortist covering their short positions. This price action could indicate that STI might be supported by 2650 support level. The short term indicators were showing bearishness yesterday. However Stochastic is now entering into the oversold zone and downside might be getting limited at this point. Any rebound right now might be restricted by either 2680 support turn resistance or the next resistance level of 2740.              
              
The banks broke their major support level yesterday as they are deemed to be the first sector to suffer from the possible recession. The selling volume which broke the support level was not convincingly high and this could imply that selling pressure might have weakened. Furthermore, formation of bullish divergence might threaten the continuation of their downtrend. Heavy selling was seen in the offshore sector yesterday. They attempted to stay at their previous level during the early session but did not manage to stop the selling pressure during the day. Sembmar was the worst hit as it dropped close to 6% yesterday. Although they are trading with such bearish sentiment, they closed at their respective support level yesterday. A possible rebound might happen if conditions are correct.              
              
Surprisingly, the properties did not suffer as much selling pressure as the rest as they were showing signs of reluctance in drop. With exception of Kepland, the rest, namely Citydev, Capitaland & F&N, did not break their recent low level and managed to maintain their sideways movement. One may wonder whether the properties will do a “catching – up” with the rest of the sectors. The commodities sector suffered the most selling pressure than the rest of the sectors yesterday. Because of the over the weekend plunge in commodities prices, this sector was not spared. Sakari resources once again suffered the biggest one day drop in its history, 13.8% down. Yesterday’s plunge also caused most of the commodities to start forming downtrend movement. Currently, Wilmar is the only one that is not following the movement of the sector.               
              
In conclusion, STI’s failure to hold at 2680 support level has confirmed its downtrend formation. 2650 support level is currently the lifeline for STI’s upcoming rebound. Yesterday’s price action had proved that 2650 support level is holding well and there is a possibility that price can rebound from here. Indicators have also shown that downside is getting limited as it is currently an oversold situation. A rebound by STI today will not be surprising give then strength of DJI’s closing last night. 2680 level might have turn into a resistance level which can prevent STI from going higher. However, a stronger resistance level would be 2740. The banking and offshore sector could be the one leading the rebound as they are trading close to their respective support levels. Long traders might see currently support level as a good opportunity for a counter trend trade. Banking sector might be a good choice as bullish divergence is seen for them. Long traders might be vigilant to take profit quickly when targets are met and be discipline to cut loss if things did not go according to plan. Shortist should have taken some partial profits as targets are being met. Partial profits are still encouraged if it was not been done yesterday. Shortist should diligently wait at sidelines for resistance levels to be reached before initiating a short position.