Daily Market Outlook for 16-Dec-2011

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In reaction to DJI’s bearish closing the previous night, STI gapped down strongly during the opening and closed 37pts down. This bearish movement yesterday also caused STI to break the key support level of 2640. Breaking of this support level would mean that STI has continued its downtrend is heading for a lower low formation. Therefore, STI is expected to head lower before it can have a significant rebound. Last night, DJI ended its losing streak after announcement of better employment figures. However, some of its gains were returned after new reports of the current Euro situation arise. DJI ended only 48 pts up last night. Will STI be able to reverse some of its losses today? Or will it continue to find a support level before rebounding?

STI formed a black candle with a gap down yesterday. A gap resistance is formed between 2653 – 2670 levels which can prevent any immediate rebound to go higher than that level. The short term indicators continued to show bearish indications yesterday and are likely to continue today. Stochastic which might trigger a bullish crossover on the previous day did not manage to cross yesterday. However, it is still staying in oversold region which indicates that chances of rebound are increasing. Since 2640 support level is broken, STI might be heading for a lower low today. Lower low can form at the gap support level between 2605 – 2620 levels or horizontal support at 2580 if the gap support fails to hold. With the formation of gap resistance, one can also expect a rebound to close the gap resistance before it starts to head lower.

The banks traded lower yesterday as traders were worried about the outcome of the Euro crisis. DBS continued to head lower yesterday as it had broke its key support level the previous day. UOB erased its 3 days’ gain yesterday and it ended at 20ma support line. Bearish signal are triggered for UOB and this might bring some selling pressure to UOB. The offshores were slightly down yesterday, following the general market sentiment. Kepcorp and Sembmar were struggling to hold their support level yesterday while Sembcorp broke its support level. Kepcorp is now sitting on the 50ma line but it is being resisted by the 20 & 100ma line. Sembcorp formed a white hammer line candle with a gap down; hence, it is likely to cover its gap down. Sembcorp’s gap resistance is at 3.94 – 3.99 level.

The properties ended slightly down yesterday as their selling momentum starts to weaken. CItydev & Kepland formed white candles with lower shadow yesterday and it indicates that they had hit a support level. Rebound could happen for both of them. The commodities were generally flat also as they were still lack of much trading actions. Noble grp which was sitting on the 20ma support line failed to stay above it yesterday. Sakari which had broken its 20ma support the previous day is now sitting on its gap support level and did not break lower. 20ma is likely to cap its upside.

In conclusion, STI’s downside is getting limited as it gets closer to the gap support of 2605 – 2620 levels. With positive closing from DJI last night, STI might attempt to rebound to close its gap resistance between 2653 – 2670 levels. Sectors that might contribute to this short rebound will be the offshores and properties. The key sectors for STI to stay supported will be the banks and properties. If these 2 sectors failed to hold at their support levels, STI will slide down further. Therefore, STI is likely to face struggles between the Bulls and the Bears which can cause volatility to the market today.

Long traders must avoid going on the long side currently as any rebound right now might be capped by the gap resistance. Shortists are to remain on their short position and to tighten their stops by adopting trailing stops. Entering short positions right now might not be a wise move but if there are counters that break their support levels today, shorting base on breakout still can be adopted.