Daily Market Outlook for 2-Dec-2011

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Sharp rebound was seen for STI yesterday as STI reacted to the sharp overnight rally by DJI after the banks agreed to inject funds to improve the liquidity of the economies. STI gapped up strong by 67 points and managed to maintain these gains throughout the day. Some selling pressure was seen during the day and it caused STI to close slightly lower than its opening. Hence, STI closed at 2761 level which is 59 points higher than the previous day. Trading volume was average. Last night, DJI failed to continue its sharp gains and started to retrace a little. DJI closed 25pts down. This could bring some selling pressure to STI. Furthermore, with weekend approaching, STI might face profit takers today. Will STI be starting to form a lower high formation currently? What are the key levels to watch to confirm its downtrend continuation?               
              
STI ended yesterday with a short black candle which created a gap support. This gap support is formed at the range of 2705 – 2755 levels. Its black candle was formed at 20ma resistance line and this indicates that 20ma is resisting the price from going higher. Hence, there is a chance that STI might retrace to cover its gap today. Based on the indicators, they are still indicating bullish momentum. However, Stochastic is starting to show signs of weakness and RSI is reaching its resistance level. On the positive side, MacD might trigger a bullish signal if a crossover is seen. Hence, 20ma resistance and the gap support is the key to maintain the downtrend formation. If STI breaks above 20ma resistance, MacD will trigger bullish signal and downtrend might fail. If the lower level of gap support at 2705 level fails to hold, STI will continue its downtrend. However, if the gap support level holds, STI’s downtrend will be compromised.               
              
The banks gapped up strongly yesterday as positive news encourages the rebound to happen. DBS managed to trade above 20ma resistance line but it is now facing resistance at 100ma level. Uob and Ocbc also managed to test 20ma but its candle pattern failed to show its conviction to break this resistance level. Lower high might be form for both Uob and Ocbc. The offshores managed to pick up their momentum and traded higher with high volume. Kepcorp and Sembcorp rebounded back to their sideways resistance level and are now trying to break for a higher high formation. Sembmar which did not perform like them also managed to rebound back to its 20ma level. Sembmar, however, fail to break 20ma line yesterday.               
              
Most of the properties manage to continue their bullish streak yesterday. Citydev even managed to break the 3 ma lines but is now facing horizontal resistance level. Kepland and Capitaland are both facing 20ma resistance line and are unable to break them. F&N, which is the only exception for the past few days, failed to trade higher and retrace back to it support level instead. Its uptrend is still intact despite its retracement. The commodities trades higher generally but its rebound were lack of conviction. Most of them ended their day with a black candle which is at 20ma resistance level. Hence, they have a good chance to continue their downtrend formation. Olam formed a black shooting star with bearish crossover in its Stochastic, hence, it is likely to retrace. Noble grp and Indoagri also showed obvious signs that it is being resisted by the 20ma line.                
              
In conclusion, STI’s sharp rebound yesterday might have threatened the downtrend formation from continuing. However, 20ma resistance level proved to be a strong level to resist the upside of STI. Most of the sectors were also showing that they have trouble breaking their 20ma resistance level. Hence, STI is quite unlikely to break 20ma resistance level today. Downside has a higher chance today as the indicators are showing weakness in the bullish strength. The gap support level that was formed yesterday will be the key level to determine if STI is continuing its downtrend. Therefore, 2705 level, which is the lower gap support level, is the key level to determine if STI form a lower high formation. In the meantime, one should expect the STI to at least test the gap support level of 2705 – 2755 levels.              
              
Long traders should have already made use of yesterday’s sharp rebound to close off their long positions. If a long trader failed to make use of the opportunity to close the position yesterday, today could be one last chance to close the long position at a better price. Shortist can start entering short position when then is confirmation of bearish candles. However, Shortist must be prepared to take profit at the lower level of the gap support as there is a chance of STI reversing its downtrend. Shortist should enter short positions cautiously.