Daily Market Outlook for 6-Jan-2012

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STI inched higher yesterday as traders attempted to push the index higher yesterday. STI opened slightly lower but managed to climb as high as 2733 level during the morning session. However, STI did not manage to maintain the bullish momentum for the day and selling pressure starts to set in before the market closes. This selling pressure caused STI to close at 2713 level instead, returning all the gains for the day back. This was in reaction to the negative Europe opening and DJI futures. Last night, DJI ended 2 pts down after its intraday recovery from its gap down opening. STI’s attempt to test 2740 resistance was unfruitful yesterday and it ended up lower. Will STI starts to retrace before it reach 2740 resistance level?

STI closed with a white shooting star formation yesterday. Shooting star formation is a bearish candle formation and this implies that price is likely to retrace. Furthermore, the upper shadow of the shooting star tested 50 & 100ma resistance line. This could imply that the resistance is strong and is prevent STI from going higher; hence, likelihood of retracement has been increased. The short term indicators, however, were still showing bullish momentum signs. Stochastic has headed higher and just entered the overbought region. This could indicate that STI’s upside is getting limited. Another observation is that RSI has managed to break the 50% level which might indicate that the mid-term momentum might turn bullish. Henceforth, the readings are mix now and STI is likely to stay close to the resistance level before any significant retracement could be seen.

Most of the banks did not manage to close higher yesterday as there is lack of further catalyst to push the prices higher. Uob failed to break the 50ma resistance yesterday and started to retrace. Uob might start retracing towards its 20ma line at 15.47 level. DBS which ended slightly above 20ma line failed to go higher yesterday. It ended at 20ma line which makes one wonder if the previous’ day price action is just a whipsaw. The offshore was one of the sectors that dragged STI down yesterday. Kepcorp dropped 21cts yesterday after its breakout attempt the previous day. Its previous day breakout might be considered as a whipsaw if Kepcorp did not manage to rebound back to that level today. Sembcorp had failed to trade higher yesterday and reversed 2% of its gains. This price action caused Sembcorp to trade below 50ma line again. However, it is now sitting on the 20ma line. Breaking below 20ma might confirm its lower high formation and can lead to further downside for Sembcorp.

The properties generally closed slightly lower yesterday. Trading action was lacking during the day as traders continues to avoid trading the properties sector. Kepland formed a white candle with upper shadow at 20ma line yesterday. This candle formation indicates the resistance pressure from the 20ma line and Kepland might have trouble breaking this 20ma resistance. Most of the commodities closed flat or slightly lower yesterday. Indoagri enjoyed the limelight yesterday after it managed to break out of its 50 & 100ma resistance level yesterday. However, it did not manage to maintain its price above the resistance level and retrace below the resistance level before the market closes. Hence, Indoagri ended up with a bearish gravestone doji which indicates that the resistance level of 50 & 100ma is strong.

In conclusion, the bullish momentum for STI has indeed weakening after its strong New Year opening. Traders are getting cautious of its upside possibility but taking some profits off the market. The selling pressure seen yesterday marked the first sign that STI’s bullish strength might come to an end and chances of retracement is getting higher. Resistance level by 50 & 100ma has been tested yesterday and STI might not be able to head higher to test the 2740 horizontal resistance. However, due to the bullish readings from the short term indicators, STI might not retrace abruptly but in a more gentle fashion. Offshore and the bank sectors might continue to bring some downward pressure to the index today. Hence, one should expect STI to end slightly lower today.

Long traders should have reacted to yesterday’s bullish movements to take profits off the tables. Long traders whom have missed the opportunity might take strong consideration to take profit despite not being able to sell close to yesterday’s peak. Risk of retracement is high right now and therefore, it is wise to avoid the long side for now. Shortist on the other hand might consider taking some short positions with target that is at their immediate support levels. Shortist should be reminded that there is signs of bullish divergence and therefore, stringent position sizing is to be adopted.