Daily Market Outlook for 7-Oct-2011

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STI rebounded strongly yesterday confirming the support level at 2550 level. It opened with a gap up and buying continues through the day. Resistance level at 2580 was tested and broken but it failed to break the gap resistance between 2591 – 2604. STI ended at 2603 level, marginally below the upper gap resistance level. Yesterday’s bullish strength was generally brought by US market bullishness but most of the bullish sentiment was brought by HSI’s performance yesterday. HSI went up by a whooping 922pts after it had closed for a day of holiday. With DJI’s bullish closing this morning, will STI be able to continue its bullish streak today? Will Friday’s effect take place?                
              
STI closed with a white candle yesterday. For the past 3 days, the candle formation resembles morning star formation which indicates a bullish reversal. This formation has confirmed STI’s support level at 2550 and lower low is formed. Based on the indicators, they have indicated bullish signal and this will provide bullish strength for the market. As the market closes at gap resistance level yesterday, there is a good chance that this resistance level would be broken given that the indicators are giving bullish indications. Henceforth, STI should be heading towards the next resistance level of 2650 which confluences with a gap resistance of 2644 – 2659. This resistance might be tough to crack as 20ma might also confluence with it. Lower high formation at this resistance is very likely to be forming.              
              
The banks continue its rebound yesterday as bearish sentiment subsided. Lower  low has been formed and the banks will be heading towards their respective resistance level to form their lower high. Their rebound target is likely to be their 20ma levels. DBS’s is still quite a distance to its 20ma level and can have a good upside range as long as it is able to break its current gap resistance. The offshore also enjoyed a good rebound yesterday. Sembcorp had the strongest rebound within the sector and have reached its immediate resistance at 3.59 level. It is also trading very closely to the 20ma resistance and is expected to test 20ma today.               
              
The properties were able to rebound yesterday despite its failure to rebound the previous day. Citydev and Capitaland were able to enjoy a good rebound and it triggered bullish signal. Kepland struggled to rebound as it met its immediate resistance level at 2.40. However, with bullish signals being indicated, Kepland should be able to break this resistance and head for the next resistance at 2.56 level. The commodities enjoyed a strong rebound yesterday after their deep plunge. Noble grp and Sakari lead the sector with rebound more than 8%. However, their rebound might be capped as they are facing resistance level right now. The rest of the commodities might attempt to do a catch up of their sector leaders.               
              
In conclusion, STI indeed managed to form a support at 2550 level. It is now clear that lower low has been formed and will be heading to form a lower high formation. Although it closes at its immediate resistance level yesterday, STI is likely to break its immediate resistance level today, given that the indicators were signalling bullishness and positive DJI’s closing this morning. STI should be heading towards its next resistance level of 2650. 2650 resistance level will be a tough level to break as there are multiple confluences of resistance level. Therefore, STI’s upside should be capped in the next few days.              
              
Long traders could have entered counter trend trades yesterday. There are still numerous counters that might have the right setup for counter trend long trades. Enter long trades only on counters that are still giving good risk reward. Shortist will be glad on not to chase the shorts as the rebound yesterday was unexpectedly strong. Shorting opportunities will come when STI hits its resistance level at 2650. Watch out for black reversal candles at resistance levels as it can be a good opportunity to initiate a short position.