STI’s downtrend has been confirmed.

Last week, STI tested 2650 support level on the first day of the week and its support at 2650 managed to hold week. Positive news from the Europe side aiding German debt problem helped global market to gain confidence during the mid of the week. STI managed to rebound from the support of 2650 and nearly test 2740 resistance level. However, at the end of the week, STI started to threaten the support level of 2650 level again as Europe’s debt issues starts to escalate again. The US market was also jittery last week as traders were cautious in buying and reacted strongly to any negative news. US ended up 240 pts down last Friday. This will bound to affect STI’s opening for the week and might even affect the whole week’s sentiment.

Can STI hold itself at 2650 support level again this week? What if STI fails to hold at 2650 support level?
Let’s get the answer from the chart to decide how STI will fair for this week.

 

Trend: Downtrend, 20ma down, MacD below 0

Support: 2650, 2580, 2520

Resistance: 2680, 2740(20ma), 2790

Observations:

Candlestick – Long black candle.

Histogram – 1R after 3Gs. No Bullish divergence.

RSI – Around 40%. No Bullish divergence.

Stochastic – Around 60%. Bearish crossover starting to form.

Bollinger Band – Band starting to turn downwards.

Conclusion:

STI broke the important support of 2680 last Monday and this indicates that STI has confirmed its downtrend formation and would be heading for a lower low. It was quick to find its support at 2650 level and bounce off above 2680 level making one thinks that it might be a whipsaw movement. Hence, it will be important to confirm whether testing 2650 support level if a whipsaw movement by identifying a lower high formation after the rebound. Indeed, STI’s rebound last week failed to test 2740 resistance level and was quick to retrace back below 2680 level and nearly test 2650 support level. Its movement late last week could be an indication that STI had formed a lower high and might be heading for a lower low formation.

The mid-term indicators have started to change after STI broke the important support of 2680 level. The Bollinger band is now pointing downwards confirming the formation of downtrend. The short-term indicators were also starting to indicate weakness in the bullish strength on Friday. The histogram is starting to show a bearish signal, however, the Stochastic has yet to show a bearish signal but it is showing signs that the bullish momentum is weakening significantly. Therefore, with mid-term downtrend readings and short-term bearish readings, more bearish movement should be happening this week.

Thus, STI is likely to test 2650 support level this week again. As there is a higher chance for a formation of a lower low after a lower high formation, it is also very likely that STI is to break 2650 support level and head for a lower support level. If 2650 support level breaks, this week, STI will likely to head towards the next support of 2580. On the other hand, if STI continues to hold at 2650 support level, sideways consolidation is likely to be seen between the range of 2650 – 2740 for the week. Based on the readings from the indicators’, it is more likely to see STI to break 2650 support level this week than to see the support level holding.

In conclusion, STI is expected to test 2650 support level this week. There is a high chance that STI might not be able to hold its support at 2650 this time round as the downtrend movement is clear. Short term indicators were also supporting the bearish move. Hence, when 2650 support level breaks, STI is likely to head towards 2580 support to form a possible lower low formation there. Chances of reaching that support level should be encourage by more negative news from the Europe market or even the US market. Therefore, the current market situation is more suitable for the Shortist to engage the market.

Long traders, whom had tried countertrend trades last week, must scramble to watch for their stop loss levels to protect further losses. Adding more long positions will not suitable for this week as downside risk prevails. Hence, Long traders should stay away from the market till the significant support level is reached. Shortist on the other hand should be encouraged to look for short positions. As lower high has already been formed, the only strategy Shortist can adopt is by using breakout strategy. Good risk reward ratio must be taken into account if a breakout is confirmed. Shortist are encouraged to ride the downtrend wave till it reached its significant support level.

What to watch out for this week:

1)      Breaking of 2650 support level.

2)      Testing of 2580 support level

3)      Testing of 2680 or 2740 resistance level.

Trading strategy to adapt right now:

-          Short on breakout of support level.

-          Close long positions when cut loss points are breached.

*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.