Daily Market Outlook for 20-Dec-2011

*Disclaimer: This material 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. If there are any questions, please contact me (Jay)

STI failed to continue its rebound yesterday as concerns of credit rating downgrade escalated in Europe. Strong gap down happened during the opening which caused STI to trade below 2640 level again. Traders scrambled to sell with anticipation of further selling as the support level broke. Trading volume continues to be lacking of participation as many traders still remain cautious. STI ended at 2618pts which is 41pts down. Last night, the DJI ended 100pts down with concerns of the Europe economy. Will STI continue its slide today? Will its immediate support level hold?

STI gapped down and formed a black candle. A slight gap resistance was formed between 2631 – 2638 levels. The short term indicators failed to confirm their bullish signal that was formed last Friday. The histogram formed a red bar which indicates a continuation of bearishness. Stochastic still remains in the oversold region but did not have a clear bullish crossover yet. As the bearish momentum is still in play, STI would be testing its support levels. Currently, STI is at the gap support level between 2605 – 2620 levels. Hence, STI might be supported by this gap support level and perform a rebound. However, if gap support breaks, STI will be testing the horizontal support of 2590.

The banks continue to trade lower yesterday as Euro crisis can have an impact on the financials of the banks. UOB broke its recent low and 20ma support and has confirmed its downtrend movement. Ocbc is still struggling to stay above its recent low of 7.80 but it is likely to break if the selling pressure persists. The offshores were struggling to stay afloat their respective support levels to avoid turning into downtrend. Sembmar and Kepcorp are now at their sideways support level and if they fail to hold their support levels, downtrend would be confirmed.

The properties held their positions well yesterday as they traded mixed yesterday. Citydev and Kepland managed to avoid selloff as they closed with a white candle. Capitaland and F&N formed black candle but their black candle comes with both long upper and lower shadows which signifies indecisiveness. Selling pressure was seen for the commodities sector yesterday as numerous fails to hold at its support level. Olam and Sakari suffered the strongest selling pressure as they broke their support level. Golden Agri is now trading at 20ma support line and if it rebound from here, it might continue its uptrend movement. However, if it fails to hold at 20ma, its uptrend might be compromised.

In conclusion, as STI is now trading at the gap support between 2605 – 2620 levels, there might be a probability of a rebound. The rebound could either be an attempted to cover the gap resistance that was formed yesterday or it could be a rebound to test 20ma. It is hard to have a clear conclusion for today’s direction as the indicators were showing bearishness. Hence, 2605 – 2620 levels are likely to be tested again before signs of rebound can be determined. If the gap support fails to hold the market today, STI will be heading towards 2590 support level before the chance of rebound will happen again. Therefore, for today, do expect a mixed market as the market will test whether this gap support level will hold or not.

Long traders can start to plan for counter-trend trades as the market has reached its support level. Long traders should wait for bullish reversal signals before entering a countertrend long trade. Shortist on the other hand should trail their stops levels or even plan to take partial profits as the market is now trading at support level. Adding short positions is definitely not a wise move currently as chances of rebound is increasing.