STI’s downtrend has been confirmed.

Last week, STI managed to open the week with a strong rebound to close the gap resistance. However, the rebound was unable to sustain and prices started tumbling down again after concerns on the Euro zone debt problems starts to arise again. A gap support by Monday’s strong rebound failed to hold the prices on Thursday and the key support level of 2740 was tested on Friday. Friday’s trading session opened with a gapped down and selling pressure continued during the day. Key support level was, thus, broken on Friday. STI ended at 2730 level; 2.2% down for the week.

As the key support level of 2740 has been broken, what is the next support level where STI can rebound? Could Friday’s closing be just a whipsaw?
STI’s chart should give us a clearer picture.

Trend: Downtrend, 20ma flat, MacD slightly above 0

 

Support: 2680, 2625, 2550

 

Resistance: 2740 (50ma), 2790 (20ma), 2860 (100ma)

 

Observations:

Candlestick – Black candle with upper shadow

Histogram – Many Rs. No divergence.

RSI – Around 30%. No divergence.

Stochastic – Around 20%. Bearish cross already formed.

Bollinger Band – Closer to lower band. Squeezing.

 

Conclusion:

STI indeed had a volatile last week where its strong rebound failed to sustain. The gap resistance was covered but it was quick to retrace. On Thursday, the 20ma support level failed to hold its support and this gave an early warning that STI’s uptrend might have been compromised. The tide turned when STI fails to hold its key support level of 2740. Failure to hold above 2740 support level would mean that STI has now turned downtrend. The lower high formation that had formed previously is now confirmed and furthermore lower low formation is very likely to be formed. The key now is where would the lower low formation be formed? Which support level will be a good support level for a lower low formation?

 

Let’s first start with the analysis of the indicators. Mid-term indicators are now obviously showing bearishness as the MacD line is now trending downwards and might cross the 0 level to confirm the downtrend. RSI trading below 50% also indicates that the Mid-term momentum has now turned bearish. Short-term wise, the Histogram continues to show bearish momentum and there are no signs of bullishness yet. Stochastic had its bearish crossover confirmed last Friday and is likely to continue its bearish streak. Therefore, bearish strength is seen from both of the Mid-term indicators and Short-term indicators.

 

As the indicators has shown, the ‘Bears’ have an upper hand right now as the key support level of 2740 level has been broken. Breaking of 2740 will also show that the price is now trading below all the MA lines. Trading below the MA lines is an indication of a downtrend market. With a lower high being confirmed, downtrend formation is bound to be seen for the next few weeks. Therefore, lower low formation is to be expected this week. The immediate support level for STI currently is 2680 level. 2680 can be a good support level as it has been tested as a support many times previously. However, if this support level still cannot hold, STI will be testing the next support level of 2625 level. If 2625 level is being tested, it will mean that the ‘Bears’ is very strong and more sharp downside movement should be expected.

 

If 2680 support managed to hold and forms a lower low formation, STI will rebound for a lower high formation. Lower high formation should be forming at resistance levels. Currently, the immediate resistance level of STI is at 2740 level. This 2740 resistance will be a very strong resistance level as it had act as a key support level for STI’s previous trend. In such a volatile market condition, we also cannot rule out that this strong 2740 resistance level breaks. Hence, if 2740 resistance breaks, the next strong resistance will be at 2790 level where there is a confluence of 20ma. Both 2740 and 2790 have confluences with MA lines. Hence, these 2 resistance levels are tough levels to break.

 

In conclusion, STI is more likely to continue to retrace for this week as the short-term indicators remains bearish. STI’s has also confirmed its downtrend formation and therefore, it should be heading towards 2680 support level before there will be a chance for a rebound. Given that the Euro zones concerns are getting more fearful, we cannot rule out that 2680 support level might be broken. Hence, the next possible support level for STI to rebound is at 2625 level. If these support levels managed to hold and rebound off, STI’s upside will be capped by the immediate resistance level of 2740. This 2740 resistance level will most likely be a strong resistance level give that it confluences with 50ma. Henceforth, Long traders must be aware that the current market condition is no longer uptrend and downtrend has been formed. Shortist has the upper hand currently as the trend is downtrend.

 

What to watch out for this week:

1)      Testing of 2680 support level

2)      Testing of 2740 resistance level

 

 

Trading strategy to adapt right now:

-          Long traders should close their long positions if stop loss levels has been reached.

-          Shortists can take some short positions based on breakout strategy. Alternatively, Shortists can wait for a rebound to resistance levels to enter short positions.

 

 

*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.