STI in the midst of forming Uptrend

STI attempted to break the 50ma resistance line at 2740 last week and managed to break it for a single day. Its bullish attempt for stopped by its next resistance level at 2790 level which triggered STI to enter retracement mode. STI immediately trades below 2740 level after breaking this resistance level and started retracing towards 2680 support level. STI managed to get good support at 2680 level and ended its week above 2680 level. During the week, trading volume was significantly lower and was lacking of participations.

Retracement for STI has been seen last week and fears of buying at high could have subsided. Will this week be the key week to see STI forming an uptrend formation by breaking its key resistance at 2790 level? Or will STI be plagued by sideways momentum causing it to be lack of trading actions?
Let’s get the answer from the chart to decide how STI will fair for this week.

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

Support: 2680 (20ma), 2600, 2520

Resistance: 2740 (50ma), 2790, 2850

Observations:

Candlestick – Short white candle at 20ma support. Possible bullish harami.

Histogram – 4Rs. No divergence.

RSI – Around 65%. No divergence.

Stochastic – Around 15%. Oversold. No Bullish crossover yet.

Bollinger Band – Price closer to mid band.

Conclusion:

Indeed, based on the analysis last week, STI failed to break 2790 resistance level and started retracing towards 2680 level. This confirmed that 2790 is a strong resistance level and 2680 could be a strong support level. The market action last week has shown that STI’s trend has now changed to sideways but it is lacking of a low formation currently. There is still a chance for STI to form an uptrend formation as long as it starts to form a higher low formation. As identified last week, higher low formation can be formed at 2600 or 2680 support level. Currently, STI ended its week still higher than 2680 level after testing 2680 support level. 2680 support level held and did not break last week. Could this be the level where STI will form a higher low formation?

The mid-term indicators are showing that STI’s trend has indeed turned into sideways and is no long downtrend. Signs of possible uptrend formation have yet to be seen and hence, the trend has to be read as a sideways. The short term indicators were showing bearish momentum due to the retracement that was happening last week. However, the bearish momentum is expected to weaken as Stochastic is now oversold and the candle formations formed a bullish harami last Friday. This could indicate a possible reversal point for STI to form a higher low formation.

In order for STI to confirm its possible bullish reversal at 2680 support level, STI must be able to trade higher than Friday’s closing which is at 2712 level. Even if STI manages to trade above last Friday’s closing today, STI will immediately face a strong resistance level at 2740 which confluences with 50ma. Hence, in order for STI to have a higher chance of forming a clear higher low formation, STI has to trade above 2740 this coming week. If STI is to trade above 2740 level this week, STI will have a good chance to form an uptrend for the upcoming weeks. In order to confirm the possible uptrend formation, STI might achieve a breakout of 2790 resistance level so as it can form an uptrend’s higher high formation.

In conclusion, STI is likely to finish its retracement this week as the short term indicators are indicating weakness in the current bearish momentum. However, to confirm the reversal, STI must not only be able to trading higher than 2712 this week; it must also be able to trade above 2740 resistance level. Given that the US market had a strong closing last Friday night; STI should be able to reach these expectations early this week. STI also have a good chance of confirmation its uptrend formation this week too. Uptrend confirmation can be expected at the end of this week if STI is able to break its next resistance level at 2790. If that happens, we should be seeing further upside in the upcoming weeks.

Currently, there are good opportunities for Long traders to enter long positions in the market as it might be turning uptrend. Counters that are trading above and close to 20ma line will be a good target for long position. Good risk and reward ratio should be considered as there is still no clear uptrend yet. Shortists are best to avoid shorting the market currently as the odds for downside are little. Shortist should wait for the next resistance level before deciding to do a countertrend short position.

What to watch out for this week:

1)      Breaking of 2712 and 2740 level

2)      Testing of 2790 resistance level

3)      Breaking of 2790 resistance level

Trading strategy to adapt right now:

-          Long traders can consider taking some long positions cautiously.

-          Shortists are to close their short position and stay sideline.

*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.