Property Curb might have reversed STI’s trend again

STI failed to hold 2740 key support level last week due to Government’s announcement of stamp duty to private properties in attempt to curb property prices. This brought shock to the market and STI gapped down strongly when the curb was announced last Wednesday evening. The selling pressure continued till Friday as traders were fearful of adverse effect of the government measures. STI ended the week at 2694 level and was 78pts down for the week. Another major concern for the market this week was the EU meeting that happened on Friday. Favourable news was announced as the conclusions of the meeting were to step up measures in attempt to save the Euro currency. This brought DJI to end 186pts up on Friday night.

STI broke 2740 support level again. Will STI truly continue its downtrend this time? Is there still possibility for rebound to happen as the Euro zone crisis is easing after the meeting?
Let’s analysis STI’s last week’s chart.

 

Trend: Downtrend, 20ma down, MacD below 0

 

Support: 2690, 2640, 2580

 

Resistance: 2740 (20 & 50ma), 2790, 2830 (100ma)

 

Observations:

Candlestick – Black star with upper and lower shadow

Histogram – 2 Rs (Bearish signal confirmed). No divergence.

RSI – Around 50%. At RSI resistance. No divergence.

Stochastic – Around 40%. No bearish crossover yet.

Bollinger Band – At between mid band and lower band. Band narrowing.

 

Conclusion:

The property stamp duty measure, that the government announced, halted the bullish momentum that the STI had enjoyed the previous week. As expected the previous week, STI did manage to test 2790 resistance level but it failed to break it and started retracing. 2740 level was also expected to hold well as a support but due to the announcement of the government measures, it broke easily. Hence, STI could have formed a lower high formation and this might indicate that it might continue its downtrend despite its downtrend was threatened the previous week. The key now is to determine the chances of downtrend continuing and which key support levels to watch out.

 

The mid-term indicators continue to be on the downtrend side as STI did not break the key resistance level of 2790. The bullish crossover of the MacD line that was formed the previous week failed to push STI higher last week. Currently, the MacD line starts to turn down and might even form a bearish crossover. In the short term, the Histogram had confirmed its bearish signal and it might continue its bearish momentum. Stochastic is now trading out of the overbought zone and is now heading towards the oversold zone. Henceforth, most of the indicators are now in the bearish side and it will more likely to continue its bearish momentum for this week.

 

With bearish readings from the indicators, the odds for STI this week will be on the bearish side. However, last Friday’s candle formed a gap resistance level between 2711 – 2726 levels. With positive news from the Euro zone, STI might attempt to start the week with a rebound to this gap resistance level. Chances of this rebound can be high as the candle formation on Friday shows that STI is holding well at 2690 support level. Despite an expected bullish start for the week, STI’s upside should continue to be capped by resistance levels. If STI’s gap resistance fails to resist, the next resistance level of STI will be at 2740 level. 2740 level could be a strong resistance as it confluences with 20 & 50ma.

 

As STI is poised for the bearish side based on the indicators, its immediate support level is at 2690. However, as a lower high formation is formed, STI might be heading for a lower low formation. In order for lower low to be formed, STI must be able to break the previous low first. STI’s previous low is current at 2640 level, hence, 2640 will be the key support level to confirm the downtrend formation of STI. If 2640 fails to hold, one can expect STI to head towards the next support of 2580 level or even lower.

 

In conclusion, STI’s downtrend might continue as STI is now trading below the key level of 2740. The indicators were now showing bearish momentum and downside should persist for this week. However, due to the positive closing from DJI last Friday, STI might start the week with a rebound to at least cover the gap resistance of 2711 – 2726. 2740 resistance level should cap STI’s upside for the week. Continuation of downtrend is likely to happen after the closing of the gap resistance. The immediate support level of 2690 will be the defacto to determine if STI will be testing 2640 key support level. If 2640 key support fails to hold, it will confirm STI’s downtrend and further selling should be expected.

 

What to watch out for this week:

1)      Testing of gap resistance 2711 – 2726 levels

2)      Testing of 2740 resistance level

3)      Breaking of 2690 support level

4)      Breaking of 2640 key support level

 

 

Trading strategy to adapt right now:

-          Long traders should avoid the long side as the trend is downtrend. Unless STI breaks 2740 resistance level.

-          Shortists can take partial profits to their short position while holding some short positions to ride the downside. Trailing stop should be established.

 

 

*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.