Daily Market Outlook for 20-Oct-2011

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STI attempted to rebound yesterday after Tuesday’s drop. STI opened higher in reaction to US market’s overnight bullishness. However, the bullish open was not supported by buying strength and soon, the market turns weak. Its upside was capped by the resistance level between 2740 – 2750. Thus, STI ended its day lower by 4pts with little trading volume. Last night, the US market did not experience any bullish strength but instead slightly selling pressure was seen, causing it to close 72pts lower. Will STI continue its retracement today? How low will this retracement be?                  
              
STI closed with a small black candle yesterday. This black candle ended slightly lower than the previous day’s closing and this could mean a continuation of the bearishness. It is also clear that the 50ma resistance line is resisting STI from trading higher. Yesterday’s price action had also confirmed that STI have formed a high and is turning down to form a low. The short term indicator’s bearish signal has also been confirmed and more selling momentum should be seen. Henceforth, STI should be continuing its retracement towards its immediate support level of 2680 or even 2600 level. 2680 support level should be a stronger support level as it confluences with the 20ma line.              
              
The banks attempted to rebound yesterday but it was lacking of the bullish drive to maintain the bullish opening. DBS was the stronger one among the banks as it managed to maintain its support above 20ma. The rest of the banks were slightly below 20ma but they ended at their respective support levels. DBS can be seen to be stronger than the rest of the banks or it might do a catch up with the rest of banks by dropping lower. The offshore which have tested their support levels have rebounded off their support yesterday. Kepcorp had the strongest rebound among the sector and it ended up with a white bullish candle. However, for Sembcorp and Sembmar, they were lacking of bullish strength and did not end bullishly. Although Kepcorp might be seen as having a strong rebound, one should note that yesterday’s price action might be an attempt to close the gap resistance before it can head for a deeper retracement.              
              
The properties were trading mixed yesterday as they are not trading in tandem yesterday. Citydev attempted to break its resistance level of $10 but failed to trade above it. F&N which has been bullish for the past few days starts to lose its bullishness and ended up with a long black candle. Kepland remains strong and continues its rebound towards its resistance level. Hence, there is vast difference in trading direction for the properties sector. Trading activities were also thin for the commodities as they are trading in a tight range of support and resistance levels. Noble grp and Sakari attempted to close their gap resistance yesterday by trading into the range but they failed to break the gap resistance. Generally, they are still supported by the 20ma line and they should continue to test this support level again.                
              
In conclusion, STI is taking a slow retracement towards its support level. There were no strong selling pressure seen yesterday and this could indicate that the Shortist is wary of the downside potential. Despite that, STI can still have the potential to retrace further today. Support level at 2680 should be the immediate target for this retracement. 2680 support level should be a strong level for buyers to come into the market to support. Henceforth, more market action should be seen when STI reaches 2680 support level, as 2680 support level is an important level to determine whether STI will have the uptrend potential.               
              
Long traders now have to wait patiently for the market to reach its support level before entering long positions. Some long traders might want to nibble some long positions on the way down but it would be better to wait for confirmation of support holding. Shortist on the other hand might have some short positions on hand. Shortist must be reminded not to add new short positions now as prices at current level might not yield good risk and reward. Hence, waiting to take profit at target levels should be practised.