Daily Market Outlook for 5-Jan-2012

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STI continues its bullish movement yesterday as fears of the Euro crisis starts to ease after European market starts to trade positively during the start of the year. STI opened with a gap up as the US market closed with a strong closing during the previous night. Selling pressure was seen during the first half of the trading day but buying pressure starts to set in before market closing. This caused STI to close slightly higher than its opening price and ended 22pts higher. This also implies that STI’s resistance of 2690 level was broken and it is heading towards the next resistance of 2740 level. Last night, DJI started with a bearish opening but it managed to recover during the day and ends up 21pts higher. STI’s opening today might be bullish again, but as it is nearly its resistance level, some selling pressure might be seen. Will STI be able to reach 2740 resistance level today? What are the odds of it being able to break this resistance level?

STI ended with a small white candle with long lower shadow yesterday. The small body implies that the bullish momentum is weakening and its lower shadow could be an intraday gap covering effect. Overall, its positive closing implies that its bullish momentum is maintained but is weakening. The short-term indicators further confirmed this bullish reading as they continue their bullishness after the reversal of its signal on Tuesday. Yesterday’s price action also caused STI to trade above 2690 resistance level and 20ma line. Trading above 20ma line implies that the current downtrend price movement might be compromised and its downtrend might be reversed. Despite trading above the 20ma line, STI now faces a tougher resistance that was formed by the 50 & 100ma lines. Hence, STI might continue to head towards 2740 level before we can identify whether this resistance level would be broken.

The banks continue to head higher yesterday after they have a bullish start for the year. Price action for UOB and DBS were lack of bullish action. As for Ocbc, it is able to end its day with a white candle. DBS and Ocbc managed to close slightly higher than its 20ma line which gave itself chances to reverse it downtrend. The offshores managed to inch higher yesterday. Kepcorp struggled to break its recent high yesterday but the breakout was unconvincing as it did not end with a solid white candle. There might be a chance for Kepcorp to retrace towards its breakout level of 9.56 level before it can head higher again. Sembcorp managed to stay above its 50ma line but its black candle closing might cause it to retrace.

The properties closed flat generally as there is lack of catalyst for the prices to head higher. Citydev broke its 20ma resistance line slightly but its Stochastic has entered the oversold zone. This might cap Citydev’s upside to prevent it from heading higher. Kepland is now trading at its 20ma resistance level and its black candle formation yesterday implies that it is having trouble to break this resistance. Lastly, the commodities closed higher generally as their bullish momentum continues to build up after finding their respective lows. Olam managed to break its 20ma resistance strongly with high volume and it can head towards its 50ma resistance line. However, it hit its horizontal resistance of 2.25 yesterday and might not be able to break out of that level today. Sakari, which similar price movement as Olam, did not follow Olam’s bullish movement and it failed to break its 20ma resistance. If Sakari manages to break its 20ma today, it might follow Olam’s movement again.

In conclusion, bullish momentum for STI is set to continue today but it is not expected to be a strong one. Trading action might be minimal during the day as participants of the market will be seeking for new catalyst to push the prices higher. Numerous sectors are trading close to their resistance level and there is still no clear sign of them being able to break these resistance levels. The offshores might drag the bullish momentum of the market today as they did not end with a bullish candle yesterday. Henceforth, STI is expected to stay flat today before it can head higher to test its next resistance at 2740. Some selling pressure can be expected at this point in time too.

Long traders whom have not entered long positions based on breakout should stay sidelines. Those with long positions can start considering taking some profit off the market as it is starting to show weakness. Shortists whom have short positions should stay prudent with their stop loss levels. Adding short position right now is not a wise move as the market is in the risk of reversing its trend