Daily Market Outlook for 15-Dec-2011

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Yesterday, STI failed to rebound towards 2690 level and it heads lower instead. The index swing between 2670 – 2680 during the day but ended at 2672 level. Traders were indecisive during the day as they will unsure of the outlook of the Euro Zone. Hence, they took the direction from the Europe market during their opening. STI dropped a mere 13pts down with low volume. Last night, the DJI continued their bearish streak and ended 131pts down. STI is likely to react to such bearish closing by gapping down the next morning. Will STI be able to hold its 2640 support level today?

A short black candle was formed in STI yesterday. This black candle implies that there is still selling pressure in the market and the white candle that was formed the previous day failed to rebound. STI continues to be trading below the declining 20ma which means that the downtrend is still intact. The short term indicators remain bearish and are likely to continue. However, the stochastic is now trading in oversold and could form a bullish crossover. Downside is getting limited as it approaches the key support level. 2640 level will remain as the key support level for STI today. If it fails to hold, STI will confirm its downtrend and it should be heading to the next support around 2580 – 2600 level. A gap support between 2605 – 2620 can also act as a support for STI is 2640 level breaks.

The banks continued to trade mixed yesterday. Uob is going against the market as it rallied 14cts higher yesterday. However, Uob closed with a black candle which implies that its upside might cap by its resistance level. DBS, on the other hand, failed to hold its support level and broke for a lower low. Its movement yesterday confirmed that DBS is forming a downtrend and it should be heading towards its next support level. The Offshores failed to rebound yesterday and instead ended slightly lower yesterday. Sembcorp failed to stay above its recent low support and broke it slightly. Hence, Sembcorp should be sliding towards 3.90 support today.

The properties closed slightly lower yesterday but are showing signs of its reluctance to drop lower. Citydev managed to form a long white candle and this could imply that it might be forming a support level to be ready to rebound. However, it must close higher today in order to confirm its rebound, which is unlikely, given that the US market had a weak closing last night. Most of the commodities ended either flat or slightly down. Most of them still manage to hold at their respective support level but it is threatening to break. Olam could have broken its support at 2.23 but if it trades lower than 2.20 level, it would have confirmed the broken support. Noble grp is now sitting on the 20ma line and if it breaks, a sell off is to be expected.

In conclusion, a strong selling off can be expected today due to DJI’s weak closing last night. STI’s key support level at 2640 level will be tested and it is important to hold at this level today. If STI fails to hold at this support level, it would mean that the downtrend will continue and it will be heading towards the gap support between 2605 – 2620. In the worst case scenario, it can even hit as low as 2580 level. Numerous sectors were also threatening to break their support level. Offshores and commodities are trading close to their support levels and if they fail to hold at their support, STI can break 2640 support easily. On the positive side, STI shows that it is oversold and stochastic indicators might trigger a bullish crossover. Hence, downside could be capped at 2640 support today.

Long traders should continue to stay sidelines although the market is trading at key support level. It will be wiser to make sure this key support level hold by waiting for a bullish reversal signal. Shortist should above adding more short position current as the key support level has reached. Taking partial profits can be a wise move to avoid any surprising rebound.