Daily Market Outlook for 11-Nov-2011

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STI dropped sharply during opening due to the bad 3Q earnings announcement and the quitting of the CEO of Noble grp. Weak Europe and US market closing also contributed to the sharp drop yesterday. This sharp drop has wiped out last week’s gain in just one day. STI closed 71pts lower, creating a large gap down and with heavy trading volume. Last night, the Europe and US market managed to recover slightly after the plunge the previous night. Will STI be able to recover some of its losses today? Is its uptrend still intact after such a drop yesterday?              
              
STI end its sharp drop with a black hammer formation. This hammer formation sits on the 20ma support level and is uncertain if it is holding. Its lower shadow nearly tested the 50ma line and could be showing that 50ma is supporting the market. The horizontal support of STI is at 2790 and 2740 level. STI seems to have tested 2790 support level and might have broken it yesterday. With consideration for whipsaw situation, STI can also be seen to be trading at 2790 support level. Yesterday’s drop has also caused STI to form a lower high formation which can tamper STI’s uptrend formation. Testing of STI’s recent higher low level had also confirmed that STI’s uptrend is compromised. Hence, going forward, STI’s trend is now considered as a sideways trend. Based on the mid-term indicators, they are still showing uptrend but the uptrend is weakening. Hence, for the indicators to turn into downtrend, STI’s support level of 2740 will be a key level to watch out for as breaking it will trigger a downtrend formation.               
              
The banks failed to maintain their momentum and dropped sharply yesterday. They were affected by the concerns of the build up of Italy crisis. However, DBS and Ocbc still managed to maintain above 20ma and might still have chance to continue their uptrend. However, their lower high formation might break the uptrend formation.  The offshore experienced a sharp drop in the opening session but they were able to recover most of the losses before the market closes. Sembcorp is the only one that not only recovered from the opening gap down but it also managed to gain $0.01 higher than the previous day’s closing. Kepcorp and Sembcorp were still able to stay above 20ma despite the drop.                 
              
The properties suffered strong selling pressure yesterday as traders were concerned about impact of the future economical outcomes. Most of them retraced towards 20ma and stay at or above 20ma yesterday, with exception of Kepland. The candle formation of F&N indicates that 20ma is a firm support level and it should hold. However, its upside will be capped by the gap resistance that it had created yesterday. The commodities suffered the most yesterday as the bad announcement by Noble grp had greatly affected the commodities players. Olam and Sakari suffered similar strong selling yesterday as some deemed that they have similar business models. Most of the commodities failed to hold above 20ma yesterday and this might greatly threaten the commodities’ chances of staying uptrend. Noble grp and Sakari are now showing clear signs of downtrend formation.               
              
In conclusion, STI’s uptrend formation has been compromised after yesterday’s sharp drop. Lower high has been formed and its recent higher low has also been tested. Hence, the current trend for STI will be read as a sideways trend. STI’s immediate support level is at 2790 but if STI continues to trade lower than 2790 today, STI will be likely to test 2740 next week. 2740 is the key level to determine whether STI will be going for a downtrend. Various sectors were holding very well at their respective 20ma support but if they fail to hold above it for the next few trading sessions, they will be in danger of forming downtrend formation. Henceforth, STI is now in danger of falling further and expectations of continuation of uptrend formation have now vanished.                   
              
Long traders could have closed some of their long positions as stop loss levels could have been met. There might be chances of rebound for gap covering but it will not be a good opportunity to go for long positions. Long traders whom have failed to close their long positions can make use of the gap covering rebound to close their long positions. Shortist might not be able to enter short positions yesterday because of the sharp decline. Therefore, if there is a rebound for gap covering, Shortist can watch out for bearish signs to enter short positions if the risk and reward is good.