Daily Market Outlook for 15-Oct-2011

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STI staged a strong bullish movement yesterday in reaction to the US market’s overnight bullish movement. STI managed to break 2740 resistance level and tested the next resistance level at 2790 level. As noted yesterday, 2790 is a key resistance level to determine whether STI will be turning uptrend. Therefore, today can be a key day to determine whether STI is to break this resistance level. Last night, DJI dropped 247 pts due to profit taking. This could jeopardise STI’s chance of breaking 2790 resistance level. Will STI go against US market’s sentiment and break 2790 resistance? Or will it retrace for profit taking?               
              
STI closed with a small candle with long lower shadow yesterday. This candle formation can be deemed as a white hanging man formation which is a bearish formation. However, its lower shadow can also imply that it managed to find support at 2740 or the 50ma line.  Hence, further bearish movement is needed to confirm the bearish formation. In order to confirm the retracement, STI must be able to trade lower than 2740 support level. Based on the indicators, Stochastic is the only indicator that triggers overbought signal and a bearish crossover. This can increase the likelihood of the price to retrace today. Henceforth, with the bearish closing of DJI last night, STI is likely to test 2740 today.             
              
The banks struggled to keep their bullish momentum up although the market is trading bullishly. Selling pressure was seen for the banks during the day but their 20ma support level kept them from going lower. Therefore, the banks are likely to test their 20ma support level again. The offshore were the sectors that pushed STI to higher levels yesterday. Sembmar took the lead in the sector with 6% increment from its previous day, causing Kepcorp and Sembcorp to follow suit. They are now trading above 50ma and might have confirmed their uptrend movement.              
              
The properties tried to continue their bullish movement but they start to experience some selling pressure when they tested their respective resistance level. Most of them opened higher but they ended up lower which indicates its selling sentiment during the day. Citydev and Capitaland which managed to trade above 50ma last week, experience selling pressure during the day, managed to hold its fort and stay above 50ma line. They are likely to test their 50ma level again today. The commodities gain further bullish strength yesterday. Most of them were able to test or even break 50ma resistance level yesterday. If they continue to trade higher than 50ma, their trend could have changed to uptrend. However, a retracement is more likely to happen for them due to weakness in their short term indicators.               
              
In conclusion, the bullish movement in STI yesterday was due to selective strength in its sectors. The offshore sector was the main contributor of the strength in STI. The rest of the sectors were showing signs of reluctance to trade higher and they might drag STI down. In order for STI to be able to break 2790, the rest of the sectors must start to show more buying strength. However, the rest of sectors were signalling retracement as their indicators were showing bearishness. Therefore, STI is more unlikely to break 2790 resistance level and retrace towards its support at 2680 or even 2600 level. 2740 resistance turn support level will be the key level to watch out for to determine whether STI will have a deeper retracement. Given the weak closing by the US market last night, it is quite likely that STI will be heading for a deeper retracement.              
              
Long traders are to make use of the strength to close their position and take profit. Re-entry of long position should happen when STI reach its support level. Therefore, opportunity for the long side will be after the retracement happens. Shortist on the other hand might have shorting opportunities today. However, Shortist must be aware that the short entry might be a counter trend trade and downside could be limited. Shortist must be prudent to take profit quick when targets are being met and good risk reward is a must.