STI’s trend has changed

STI failed to test 2900 level last week as fresh concerns on the Europe economy trembled the whole market. Political instability in Greece and Italy left many traders and investors worried about whether the EU will be willing to resolve their debt issues. Another major cause in the sharp drop in STI’s sharp drop on last Thursday was partly due to the negative 3Q earnings of Noble grp and resignation of its CEO, which collapsed 25% that day. Hence these events caused STI to drop 57pts for the week. Last Friday, STI also attempted to rebound but it only managed to gain a marginal 4 pts. But on Friday night, DJI managed to recover 259 point after traders gain confidence of the current economic situation.

With fresh concerns from Europe, will STI be able to survive the ordeal? After this sharp drop, will STI still be able to continue its uptrend and break 2900 resistance level eventually?
Let’s get an insight by analysing STI’s chart.

 

Trend: Sideways but slightly up, 20ma up, MacD above 0

 

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

 

Resistance: 2850 (Gap resistance 2790 – 2853), 2900 (100ma), 2940

 

Observations:

Candlestick – Doji star

Histogram – 9Rs. No divergence.

RSI – Around 60%. No divergence.

Stochastic – Around 50%. Bearish cross already formed.

Bollinger Band – At mid band. Squeezing.

 

Conclusion:

STI failed to meet our expectation of testing 2900 last week as it is only above to the highest level of 2880. The retracement started last Wednesday when fresh concerns from the Italy debt situation sparked fears in the market. Asian markets plunged on Thursday as they reacted to the fresh concerns in Italy. Hence, STI gapped down on Thursday and it immediately tested 2790 support level. 2790 support level was breached during that day but bargain hunters came into the market to support the 2790 level. The inclining 20ma has also reached 2790 support level at that period of time and hence provided a good support for STI on that day. Friday’s closing was slightly above 2790 as traders were still concerned about the weekend risk and were unwilling to commit any long positions. Hence, more detailed analysis is needed from the indicators in order to have a clearer picture of STI’s direction for this week.

 

The mid-term indicators were still bullish and indicating but signs of weaknesses are starting to appear in the MacD line and the 20ma line. MacD line appears to have a possible bearish crossover which indicates a possible change in trend. The 20ma line appears to be flattening which indicates that the trend might have changed to sideways. However, the 50% support line for RSI is still holding well. The short term indicators were showing bearish momentum and might still have downside risk for the next few days. However, the doji star that was formed last Friday showed that the market was uncertain on whether to trade lower. Furthermore, this doji star was formed on the 20ma and horizontal support level; hence, it could be an indication that the support is holding well.

 

The mid-term bullishness of STI is now in danger of losing its strength and its uptrend might no longer be able to sustain. Based on the chart, STI failed to break the 100ma line last Wednesday and retraced on Thursday. This retracement can be seen as a confirmation of a lower high formation. Furthermore, the recent higher low level was tested on Thursday and this price action causes a change in the uptrend. Lower high is an indication of possible downtrend while same low indicates a possible sideways. Therefore, STI uptrend formation has come to a halt and one should conclude that STI might be forming a sideways. However, the concern now would be whether STI will be forming a downtrend as concerns of the Europe debt issue caused the change in trend.

 

As it is a possible sideways for STI currently, the sideways range can be identified to be between 2740 – 2900 levels. Hence, for STI to become downtrend, 2740 support level will be a very important support level. Breaking 2740 support level will mean that STI will be forming a lower high and thus confirming a downtrend formation as a lower high has already been formed. However, in the short term, the candle formation for Thursday and Friday indicates that 2790 can be a firm support level. Furthermore, there is a gap resistance between 2790 – 2853 that is being created last Thursday. STI also stand a good chance of having a rebound to cover this gap resistance. Henceforth, the odds can be on either side for this week.

 

In conclusion, STI is likely to enter an uncertain week as there are still no clear indications of which direction STI will be heading towards after the analysis. Uncertainty brings volatility and hence, volatility is very certain to happen for this week. Mid-term indicators were struggling to remain bullish and are threatening to reverse the current trend. Readings from the price movements from last week were indicating that STI’s uptrend has been compromised and might start to form a downtrend. Hence, STI’s can be deems to be trading in the sideways range of 2740 – 2900 levels. Breaking of 2740 support level will indicate that STI is forming a downtrend and further downside would be seen. However, as there is a gap that was formed recently, STI can rebound this week to cover the gap before it threatens to break 2740 support level. Therefore, which such uncertain conditions, traders must be willing to take large risk during this period. If large risk is not suitable for individuals, it will be wise to avoid entering any positions.

 

What to watch out for this week:

1)      Rebounding to cover 2790 – 2853 gap

2)      Testing of 2740 support level

 

 

Trading strategy to adapt right now:

-          Long traders can take some risk to make use of the gap covering rebound to make some profit. However, large risk appetite is needed for this kind of trade.

-          Shortists can take some short positions if there is a rebound. Large risk appetite is also needed for such trades

-          Avoid entering positions if individual is not able to take the risk and volatility.

 

 

*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.