Daily Market Outlook for 3-Nov-2011

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STI rebounded strongly yesterday after a weak opening in the morning. STI went as long as 2754 during the morning trading session before bargain hunter started to flock into the market for bargain deals. It seems that 2790 support level was broken in the early trading session but the rebound had made STI stayed above 2790 support level. The trading volume was slightly better off than the previous day and this can indicate that traders are watching this support level. Last night, the DJI ended positively also which halted the sharp decline for the past few days. However, Greek debt crisis continues to boil in the Europe market. Will STI continue to rebound today due to positive closing from the US market? Or will STI retrace and test the support level again due to the concerns of the Greek debt crisis?              
              
Long white candle was formed yesterday for STI as this is an indication of bullishness during the day. This candle formation can be read as a bullish engulfing formation which indicates a possible bullish reversal. This bullish reversal was formed after testing the 20 and 50ma support level and this shows that this support level is holding well and thus, the bullish reversal candle is formed. On the short term indicators side, despite such strong rebound, the indicators continue to indicate bearish momentum. This could mean that the selling pressure might not have ended despite the strong rebound yesterday. However, the stochastic indicator is starting to indicate that the bearish momentum is starting to weaken and there might be a possible crossover soon. With these readings, STI might not have the strength to continue its rebound due as the indicators are not ready for the rebound yet. STI is likely to test the support level at 2790 or even 2740 level again before it can have a proper rebound.              
              
The banks rebounded strongly yesterday as speculators were positive of the Greek crisis to be resolved. Bullish reversal patterns were seen for the banks but they require confirmation before they can rebound further. UOB and Ocbc bank announced weaker than expected earnings yesterday; this might affect their chances of rebounding higher today. The offshore encountered strong surge in prices yesterday after they have tested the 20ma support level. Bullish piercing formations were seen for this sector but they still require confirmation before they can head higher. The indicators were still not ready for the rebound and hence, they might continue to consolidate at their support levels.                
              
The properties also attempted to rebound after their slide for the past few days. They managed to test their respective support levels before this rebound happens. Citydev bounced off the 100ma support and it looks ready to go higher, however, its indicators are still on the bearish side. Hence, there is still a good chance that Citydev might continue to consolidate at its support. The commodities sector enjoyed the strongest rebound yesterday as traders are positive about the commodities play. Noble grp, Olam, Golden agri and Sakari ended their trading day with bullish engulfing formation. This bullish engulfing formation indicates that they might have formed a good support level and their chances of rebounding high are high.              
              
In conclusion, despite such bullish rebound that happened yesterday, STI might still continue to retrace to make sure that its support is formed firmly. Numerous sectors did indeed form bullish reversal formation, but most of these formations require confirmation in order for the price to trade higher. Without bullish indication from the short term indicators, chances of confirming the bullish reversal formation is quite slim for now. Therefore, we might be seeing STI to test its support level at 2790 or might even test 2740 support level. However, on the other hand, we also cannot rule out the possibility of STI rebounding higher today. The immediate resistance of 2900 level should hold as a resistance for today.                  
              
The sharp rebound might have caused numerous long traders to chase the price and enter long positions. Due to the fact that the bullish reversal formation requires confirmation, Long traders should identify the confirmation price of the reversal formation and in conjunction with stop loss and target level. This is to ensure that there is good risk and reward before an entry to make a long position. Shortist, on the other hand, might panic and exit their short positions quickly before reaching their target levels. It might be a wrong move as stop loss levels are generally not being met by yesterday’s rebound. Shorting right now is definitely not a wise move.