Uptrend continues despite Greek concerns

Last week, STI started the week facing difficulty breaking 2900 resistance level and started to retrace. The retracement was sharp and quick; Breaking the minor support level of 2850 and tested 2790 support at the mid of the week. 2740 support level was nearly tested as it has multiple confluences of MA lines. At the end of the week, on Friday, STI rebounded strongly after 2790 support was tested multiple times. However, with the support turn resistance level of 2850, STI is unable to break this resistance immediately on Friday as traders were wary of any blow out of bad news from the Europe side over the long week end. Therefore, STI ended the week down 57pts.  

With much concerns of Greek’s debt issue and political issues, it had lead to many concerns in the market which caused STI’s retracement last week. Last Friday’s rebound caused many to wonder whether the upside for STI would carry on. Will STI be able to continue its uptrend momentum this week?
Let’s get the answer from the chart to decide how STI will fair for this week.

 

Trend: Uptrend, 20ma up, MacD above 0

 

Support: 2790, 2740(20 & 50ma), 2680

 

Resistance: 2850, 2900 (100ma), 2940

 

Observations:

Candlestick – White candle with upper shadow

Histogram – 5Rs. No divergence.

RSI – Around 60%. No divergence.

Stochastic – Around 50%. Bullish crossover formed.

Bollinger Band – Between mid band and upper band.

 

Conclusion:

Our expectation of market retracement did indeed happen last week. 2850 support at that time was broken quickly and 2790 support level held really well. This retracement has caused STI to form a higher high formation which is a natural reaction for an uptrend condition. Hence, a higher low formation was expected to form. The strong support range of 2740 – 2790 level held very well last week as the 20 & 50ma lines help to bring confidence to the support range. Last Friday’s rebound could have help STI to form a higher low formation. Confirmation of a higher low formation could be identified using the indicators.

 

The mid-term indicators remained bullish and they show that STI’s uptrend is likely to be sustainable. RSI is now out of the overbought zone and is supported well by its 50% line. Stay above 50% line is an indication of a good uptrend formation. The short term indicators were showing mixed reaction as the Histogram is still showing bearishness while the Stochastic triggered a bullish crossover. The candlestick formation also triggered a white hammer last week and Friday’s price action had confirmed the reversal. This white hammer has also confirmed that 2790 is a strong support level.

 

With majority of the indicators showing bullish indication, it is very likely that STI had formed a higher low formation at 2790 support level. However, last Friday’s rebound had met some resistance at 2850 level and was unable to break it. With confidence from the bullish signal from the indicators, it is likely that STI would be able to break this 2850 resistance this week. Hence, STI is likely to head towards 2900 resistance level after breaking 2850 resistance level. As 2900 resistance level has a confluence with the 100ma line which STI did not manage to break last week, it will be a key level to watch out for this week. Given that the mid-term indicators were still showing signs of uptrend, STI should be able to break 2900 resistance for a higher high formation and therefore, 2940 resistance level could be tested.

 

In conclusion, STI should able to reach 2900 resistance level this week, given that it is able to break 2850 resistance. Its higher low formation should bring confidence to allow STI to be able to continue its uptrend formation. Concerns of the Greek debt issue should continue to linger in the market this causing some volatility, but given that STI is still showing bullish signs without any weakness, STI should be able to fulfil its expectation of heading higher. Once this key resistance level of 2900 is broken, STI should be able to head towards 2740 resistance level or even higher.

Long trader whom had lock in partial profit early last week should take the opportunity of confirmation of higher low formation to enter back long positions. As last Friday’s rebound was a sharp one, it is important to make sure that new long positions still yields good risk reward ratio before entering a long position. Shortist should have already closed their short positions during the sharp rebound on last Friday. Hence, Shortist should be waiting sideline to identify the formation of a higher high before doing a countertrend short.

 

What to watch out for this week:

1)      Breaking of 2850 resistance level

2)      Testing of 2900 resistance level

3)      Breaking of 2900 resistance level

 

 

Trading strategy to adapt right now:

-          Long traders should look out for counters that are trading uptrend and is close to support level. Good risk and reward ratio must be identified.

-          Shortists should stay sideline till a higher high formation is formed.

 

 

*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.