Daily Market Outlook for 7-Dec-2011

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The S&P rating agency warned that they might lower the credit rating of the European countries yesterday. STI reacted to this negative news and ended up 17pts down. Previously, when S&P warned the downgrade of the US credit rating, STI reacted by dropping strongly. However, this time round, the reaction was not as strong and STI held firmly above 2740 support level. STI opened slightly lower in the morning and selling action starts to kick in which caused STI to go as low as 2736 level. However, positive opening from the European market brought STI back up and eventually close at 2749 level. Trading volume was still below average. Last night, DJI rebounded marginally higher and ended 52pts up. How will STI react to the negative news by S&P? Will STI be able to hold above 2740 level today?               
              
STI closed with a small black candle with lower shadow again. This indicates that STI is still facing selling pressure and it attempted to trade lower. However, the strong support at 2740 level which confluence with 50ma line is preventing the price from dropping lower. The lower shadow of the candle pattern yesterday proved that this support is strong. Based on the short term indicators, bearish signal was triggered by the stochastic indicator which is also trading at the oversold region. Although the Histogram has yet to form any bearish signal, stochastic might have given an early warning of the upcoming bearish momentum. Therefore, to confirm the bearish momentum, STI must be able to break this strong support of 2740 level before it retrace further. As it is at support level, a rebound might also be possible. Any rebound will be capped at 2790 level.               
              
Most of the banks traded lower yesterday as the banks’ financial activities might be affected if the Euro zone’s credit rating is being lower. UOB ended at 20ma line while DBS ended slightly lower than the 20ma line. Ocbc remains firm and stayed above 20ma & 50ma line. Bearish signal was seen in DBS which might encourage DBS to retrace towards its 50ma support at 12.25 level. The offshores ended lower yesterday after they had stubbornly stayed on the high side. Most of them encountered strong selling but it rebounded slightly before market closes. Kepcorp triggered bearish signal and it is likely to retrace to 20ma & 100ma support level.              
              
The properties were mostly lower yesterday after they struggled to stay afloat for the past few days. Citydev ended lower but it got supported by the 50ma line. Capitaland retraced the most yesterday but it ended at the 50ma support line. Bearish signal is seen for Capitaland. The commodities ended up slightly lower yesterday as the general market sentiment is cautious. Olam encountered selling pressure yesterday after it failed to break 100ma resistance level. It is now sitting at 20ma support level and it triggered bearish signal. If it fails to hold at this 20ma support level, further downside should be expected to happen.                 
              
In conclusion, STI is now at the tipping point of continuing its downtrend. 2740 support level is the key level to determine whether STI will continue its downtrend. 2740 is showing good signs of holding well, but the short term indicators were not very encouraging. Bearish signal is seen in the stochastic indicators. If STI breaks 2740 level today, it will confirm this bearish signal and STI is expected to retrace further. Numerous sectors also triggered bearish signals and are trading at their gap support levels. If these support levels fail to hold again, STI will head for further retracement. Given that the US market ended slightly higher, this might buy some time for STI to hold above 2740 level today. Chances of upside might be very little; hence its upside is still capped at 2790 level.              
              
Both Long and Short traders must be cautious at this junction. Long traders might be at the disadvantage since bearish signals were seen. Hence, cautious step to close long positions should be done. Shortists whom have entered short positions must be aware that STI is now trading at a key support level. Although there are bearish signals triggered, confirmation is still needed. Enter more short positions if 2740 support level is broken. In the meanwhile, strict stop loss level should be exercised. there are bearish signals triggered, confirmation is still needed. Enter more short positions if 2740 support level is broken. In the meanwhile, strict stop loss level should be exercised.