Daily Market Outlook for 22-Dec-2011

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STI gapped up strong yesterday in reaction to DJI and Europe’s strong closing the previous night. STI opened at 2656 level which immediately broke the 2640 resistance level. Hence, STI would be heading towards the next resistance level of 2690. Buying sentiment continued throughout the day causing STI to close at 2674 level. STI ended a whooping 58pts higher but the trading volume was not significant. Last night, the ECB announced plans to inject more funds into the European banks brought some controversy to the market. There was initiate positive reactions in the European market for the move, but the market decides that it was not a very good move as the European market closed in red. This lead to some selling pressure in the US market early in its trade but it managed to recover before its closing. Will STI be able to maintain its bullishness today and head towards 2690 resistance level?

STI closed with a white candle yesterday. This white candle was formed together with a gap up and hence, a gap support was formed. The gap support is now at 2628 – 2650 levels and STI might retrace to close the gap. However, the short term indicators were not showing signs of bearishness currently. The histogram and stochastic turned bullish after this strong bullish movement. Stochastic which used to be trading at the oversold region is now trading out of that region. Another significant change as that the histogram starts to form a higher low in its bars and it might be deem as a bullish divergence. This could be a first sign to indicate that STI’s downtrend is starting to weaken. Further confirmation should come from RSI which is not showing any clear divergence signal currently. Henceforth, STI can still have strength to head towards its immediate resistance of 2690.

The banks gapped up strongly yesterday as the Euro situation starts to ease. DBS managed to end its losing streak after it managed to recover $0.44 yesterday. Bullish signal was seen in DBS and it will likely to give it strength to maintain its bullishness. UOB also showed a strong rebound yesterday which helped it to trade above 20ma again. Bullish signal were also seen in UOB which can help to push its price higher towards the 50ma line. The offshores also rebounded strongly yesterday. Kepcorp and Sembmar managed to test its 20ma resistance line and still managed to close with a white candle. However, they did not manage to break this 20ma resistance as traders are still cautious of its bullishness.

The properties managed to rebound yesterday as the broad market sentiment helped them to gain bullish strength. However, most of the properties failed to maintain its bullish opening as selling pressure seeps in during the day. Traders were still not confident in the properties after the curb imposed by the government. F&N is the only counter that manages to trade above 20ma and it managed to maintain its bullishness yesterday. The commodities rebounded yesterday too. Some gains were seen for most of the commodities. Sakari was the strongest performer in the sector after it had confirmed the bullish harami cross formation yesterday. Olam which has similar formation as Sakari as confirmed its bullish reversal formation. Both of them would be heading towards its 20ma as resistance. Noble grp called a trading halt during the early trading hours as its subsidiary announced a possible takeover by a China based mining company.

In conclusion, STI’s rally yesterday was a broad based one and is likely to maintain its bullishness. Bullish signals were triggered and this should help STI maintain its bullishness today. However, with a flat closing by DJI last night, it might not bring a strong start to STI today. Hence, STI might be trading similarly to DJI and should be lacking of much trading actions. Market participants will be watching out for Europe’s opening as it will be the key indicator to lead STI to its closing price today. Gap support level between 2628 – 2650 levels will maintain the market’s bullishness if they hold well as a support. Upside will continue to be capped at 2690 level.

Long traders must be in dismay as price gapped up strongly yesterday. Numerous counters that were trading at support level failed to give a good risk reward entry point. Long traders should avoid chasing the price currently as the risk and reward factor is not attractive. Shortist should be glad that this rebound starts to happen. Shorting opportunities will arise soon as the market approaches its resistance level soon. Hence, Shortist should spend time to identify counters with good shorting setups.