STI might have formed a bottom

Last week, STI enjoyed a sharp spike in prices despite expectation of lower high formation during the mid of the week. As 2680 resistance was the key resistance level for the lower high formation, STI managed to break this resistance level last Wednesday. This caused Shortist in the market to scramble to cover their short positions causing STI to continue their bullish movement for the last 2 days for the week. Breaking of this key resistance level also caused STI’s downtrend to change to either sideways or uptrend.

Many were concerned whether this sharp rebound that happened last 2 weeks is sustainable. While many found that they have missed the opportunity to buy at the bottom. Have the bottom really been formed? What are the key levels to watch out for before we can decide our action plans in the market?
Let’s get the answer from the chart to decide how STI will fair for this week.

 

Trend: Sideways slightly downtrend, 20ma flat, MacD below 0 but close to 0

Support: 2680 (20ma), 2600, 2520

Resistance: 2740 (50ma close), 2790, 2850

Observations:

Candlestick – Short white candle near 50ma.

Histogram – 6 Gs. No Bullish divergence.

RSI – Around 60%. No Bullish divergence.

Stochastic – Around 90%. Bearish crossover is seen.

Bollinger Band – Price between mid band and upper band

Conclusion:

STI was expected to rebound off 2520 support level and capped by 2680 resistance level last week, however, this expectation failed to be fulfilled. Failure of such expectation would mean that STI’s downtrend have been compromised and might not be downtrend anymore. Hence, STI can either be trading sideways now or uptrend. To determine whether STI will be going sideways or uptrend, a key support and resistance level should be identified. If STI is able to break the immediate resistance level of 2740 and even breaks the next resistance at 2790 level, then, STI will be deemed to be starting its uptrend movement. On the other hand, If STI cannot break the 2 resistance level and retraces, support level will be important. If STI retraces and holds its support at 2680 or 2600 support level, it could be forming a higher low formation which can also indicate a uptrend formation.

Currently, based on the mid-term indicators, they are indicating that STI’s trend is now sideways but skewed more to the downtrend side. Uptrend indications have yet to be seen. The short-term indicators are currently indicating bullishness and could push STI further up. However, Stochastic is currently in overbought region and triggered a bearish crossover which requires a confirmation. Therefore, there is a higher chance for STI to retrace early this week instead of breaking resistance levels.

As STI’s bullish strength might be getting limited due to the indicators’ readings, STI should be capped by resistance levels this week. The immediate resistance level remains to be at 2740 level and close to this resistance level is the 50ma resistance line. STI might attempt to break 2740 level and test 50ma before a proper retracement could be seen. 50ma resistance line is currently trading around 2760 level. If STI fails to break these 2 levels, this week, then it will be likely for STI to retrace towards 2680 or 2600 support level. However, on the other hand, if 50ma line fails to hold as a resistance level, we will be seeing STI testing the next resistance level at 2790. Breaking the last line of resistance level at 2790 would mean STI will be trading in uptrend momentum.

In conclusion, STI will continue to test resistance level this week but there will be a higher chance of retracement when the resistance levels are tested. Retracement can either start at 2740 resistance level or 50ma resistance level (2760) or even 2790 resistance level. If STI is to retrace at either of these levels, STI will still be deemed to be trading sideways. The indicators were indicating more likelihood in retracement than breaking the resistance levels. The downside for the retracement will be at its support level of 2680 or 2600 level. Bouncing off these support levels would also mean a possible formation of uptrend.

Long traders must have felt that they have missed the opportunity to buy at low prices and felt like chasing the prices higher. It can be a bad move to chase the prices during breakout and hence, it will be safer to wait patiently for a good retracement before deciding on the long side. Shortist must have scrambled to cut their positions and cut loss points have been breached. Entering short positions now can be deemed as a countertrend trade and hence, caution is to be practised. Shortist whom has missed the opportunity to cut their short positions has to wait for a retracement opportunity to close their short positions.

What to watch out for this week:

1)      Testing of 2740 or 50ma resistance (2760)

2)      Testing of 2790 resistance

3)      Testing of 2680 support level

Trading strategy to adapt right now:

-          Avoid taking trading positions till clear trend is formed.

-          Shortists are to close their short position when retracement is seen.

*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.