Daily Market Outlook for 16-Nov-2011

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STI returned part of the gains yesterday as Europe zone concerns started to escalate again. It opened slightly lower yesterday and was able to maintain its slight drop most of the time during the day. However, when the Europe market opens in the red territory, traders started to be worried about the escalating debt issues of Italy and Greece. This caused the market to close 18pts down at the end of the day. Yesterday’s trading volume was one of the lowest during the month. Last night, DJI started it session in red but before closing, it recovered from the red and closed 17pts higher. This is due to positive economic data that was announced. Hence, will STI be able to recover the losses incurred yesterday?

The retracement that STI performed yesterday can be seen as a gap covering movement by the market. The gap support between 2799 – 2827 levels was tested and it still managed to hold the market. However, the candle that was formed yesterday shows a black candle formation. Black candle indicates that there could be a continuation of possible selling pressure. Hence, selling could continue today. However, the inclining 20ma is now hovering at 2800 level which confluence with the lower line of the gap support. Therefore, STI could be holding well at 2800 level. The short term indicators remain bearish but Stochastic starts to trigger a bullish crossover signal. Hence, chances of rebounding can be greatly increased as long as 2800 level holds.

The banks retraced yesterday and they tested their individual gap support level. Ocbc bk is now trading close to the 20ma support level after its retracement yesterday. Any rebound at this point could help Ocbc to change its trend to uptrend. The offshores were also unable to maintain their bullishness and retraced to their gap support levels, with exception of Sembcorp. Sembcorp had a bullish day yesterday and it is still struggling to break the 100ma resistance level. Kepcorp is interesting right now as it is trading between 20ma support and 100ma resistance level. Break of either level will determine its direction going forward.

The properties also retraced slightly yesterday after their attempts to trade higher. Citydev which had broken the 200ma the previous day is now trading below 200ma again. Hence, 200ma line may not be a good resistance level for Citydev currently. The commodities were trading slightly lower yesterday as they were unable to attract buyers to push the beaten down prices higher for the past few days. Golden agri, which is the only one that show bullish strength for the past few days, failed to break 0.68 resistance level yesterday and it started to retrace towards its support level of 0.67 again.

In conclusion, STI’s retracement yesterday did not come with strong selling pressure. This is mainly due the gap support that it had created on Monday. In order for this gap support to continue to hold well, it must stay above 2800 level today. However, there are some bullish indications in the short term indicators right now. Hence, 2800 level should hold well. A rebound can be expected today as the US market ended positively last night. Trading volume is likely to continue to be lacking as traders will still continue to exercise extreme caution. Further upside strength can only be achieved if STI is able to break the recent high of 2880 level which confluences with the 100ma resistance. Henceforth, STI is most likely to continue to trade in a very tight range today.

As the trading volatility and volume are likely to be lacking, both Long and Short traders will find it hard to execute trading positions today. Breakout strategy is the only strategy that one can consider to use currently as the market has possibility of breaking either side right now.