Daily Market Outlook for 5-Oct-2011

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STI yet again gapped down strongly yesterday morning in reaction to further weakness in the US market and Europe debt concerns. The drop was one of the sharper ones yesterday as STI’s important support level at 2680 level failed to hold on Monday. Participants of the market ignored 2580 support level and cracked that level easily as more selling floated in early in the morning. Situation got worse after Europe market opens and caused STI to plunge further into the red. STI ended up near to the support level of 2520. Last night, the US market managed to reverse its losses to end up 153 points higher. This was due to Fed’s chief, Ben’s speech to urge policy makers to find ways to maintain the market due to the Europe crisis. Will STI stay supported at 2520 level today? Can a rebound be happening right now?                 
              
STI closed as a long black candle yesterday which indicates strong selling pressure. Although the gap was created yesterday, the gap is minimal due to upper shadow being formed during the day. Short term indicators were still indicating bearish momentum as there is still no clear signs of weakness in the bear yet. RSI and Stochastic is now at the oversold line and is attempting to enter into the oversold region. As the market is now at a support level, there is a likelihood of forming a lower low formation here. Rebound can be expected as the market had a meaningful drop. However, if the market fails to hold at 2520 support level today, STI will be in for another big drop as the next support level is at around 2420 level. Chance of breaking 2520 support can be high as the indicators are still bearish.              
              
The banks went for a lower low yesterday as they drop drastically, breaking their recent low. Its bearish move yesterday caused their bullish divergence movement to fail; ending their chance of reversing their trend. Indicators are starting to go into oversold and downside should get limited in order for a lower low to be formed. The offshore continued their deep fall causing them to the one of the worst performers for the past 3 months. Sembcorp managed to test its support at 3.20 level and bounced off with a white candle indicating its reluctance of dropping further. It might be heading towards 3.40 resistance to test it.              
              
The properties encountered drastic selloff yesterday as the market finds no reason to support them. The selling pressure caused them to be trading closer to their respective support levels. F&N yesterday had a very volatile session which caused it to break out of its symmetrical triangle formation. Breaking out downwards in this formation indicates more downside for F&N is to be expected. The commodities continue to suffer selling pressure as commodities price continues to plunge in the global market. Indoagri and Noble grp are now close to their respective support level and might rebound if their support levels hold. The rest of the commodities might have more room to retrace as they have yet to reach their support levels.               
              
In conclusion, STI’s drop yesterday was expected but the extent of the drop could be too drastic. Support at 2520 level managed to halt STI’s drop and it could be a level to prevent STI from dropping further. With positive closing from the DJI last night, STI is likely to continue to hold at 2520 support level. However, given that the indicators are still bearish, one should not be alarm to see 2520 support to break today. If 2520 support breaks today, we should be expecting STI to fall further towards 2420 support. That will be another drastic drop. Looking at various sector, a handful of them have reached and tested their respective support levels. Most of them were close to their immediate support level too. Hence, downside should be limited and 2520 support level might not be able to break easily. Long traders should start to plan for countertrend trades but is not highly recommended strategy for now. Any indications of a bullish reversal candle can be a good opportunity for countertrend trade. Shortist must have enjoyed their profitable trade that they had made over the weeks. Profit taking should be greatly encouraged as numerous trading targets have been made. Shortist should wait for a significant rebound before entering short positions.