New Year, Bullish Start for STI

STI started the New Year with a buzz as it opened and ended up strongly for the week. Strong buying sentiment was seen on the first trading day of the year which STI managed to maintain the gains for the rest of the week. STI was up 69pts for the week with trading volume starting to pick up and ends at 2715 level. This bullish sentiment did helped STI to test resistance level formed by both the 50 & 100ma line. However, it failed to break it and ended up lower.

Has STI confirmed its bottom after last week’s bullish movement? Will STI start to retrace after such a bullish week? What will be the key support level if STI starts to retrace this week?
Let’s explore the possibilities using the chart readings.

Trend: Downtrend, 20ma flat, MacD near 0

 

Support: 2680(20ma), 2640, 2580

 

Resistance: 2740 (50ma, 100ma), 2790, 2850

 

Observations:

Candlestick – White candle with lower shadow.

Histogram – 4Gs. Bullish divergence already seen.

RSI – Around 68%. Possible bullish divergence.

Stochastic – Around 90%. Overbought. Possible bearish crossover.

Bollinger Band – Between upper and mid band. Band starting to squeeze.

 

Conclusion:

STI’s bullish movement last week could have helped it to form a higher low formation which could be the first sign of an uptrend movement; however, a clear higher high was yet to be formed. It is necessary for a set of higher low and higher high to be formed before an uptrend formation is confirmed. Currently, its failure of breaking 2740 resistance level might indicate a possible lower high formation instead. Hence, a risk of continuation of downtrend continuation might still be in play. Therefore, it is crucial to identify where is the level of which STI will fail its possible formation of an uptrend. Similarly, we can also identify which level would be the key for STI to hold/break in order for STI to form an uptrend formation.

 

The mid-term indicators were starting to show signs of STI weakening as 20ma is starting to flatten and at the same time MacD is coming near to the 0 line. If MacD starts to trade above the 0 line, there is a high chance that STI’s trend could have been changed. Currently, it can be deemed as a sideway move with risk of downtrend continuation. RSI trading above 50% is a sign that the trend could have been changed because in downtrend scenario, RSI will be trending below 50% level. Therefore, STI’s trend could have already been changed but it is still not clear whether uptrend has been formed. In the short-term, the indicators were still showing bullish readings as price continues to trade higher last week. However, Stochastic is starting to show signs of weakness as the %D line is starting to turn down for a possible bearish crossover. Thus, retracement risk is high right now as STI had already enjoyed a short term bullish run.

 

With the analysis from the mid-term indicators, STI might have already formed a bottom and its trend could have changed. Mid-term sideways trend can be expected right now as STI has yet to form clear higher low and higher highs. Therefore, key levels where higher low and higher high can be formed will be important to identify. Currently, STI’s immediate support level is at 2680. This 2680 support level can be a good level for STI to form a higher low formation. Furthermore, 2680 support level have good confluence with the 20ma support line and it could help the STI’s price to stay supported. If STI retraces to test 2680 support level and manages to rebound after testing that level, it would mean another higher low formation. Another higher low formation would mean that uptrend price movement is in play and STI might set to continue its uptrend movement.

 

Another alternative for STI to form an uptrend formation would be formation of a higher high level. Currently, STI faces strong resistance from 2740 level where it has strong confluence with 50 & 100ma line. Last Thursday’s candle formation has proven that STI is facing strong resistance from the MA lines. Therefore, in order for STI to prove that it is in an uptrend price movement, it must be able to break this strong resistance level. 2740 resistance level would be the key level to break before STI can form a higher high formation. If STI managed to break 2740 level, the next resistance for STI to form a higher high formation will be the 2790 resistance level. If these price actions are being seen this week, STI will have confirmed its uptrend formation.

 

In conclusion, the bullish divergence readings during the previous week could have been confirmed. STI’s downtrend price movement could have already been changed to at least a sideways formation. Chances of uptrend formation are now on the high side but what is lacking is another set of higher low and higher high formations. 2680 support level will be the key level for a higher low formation while 2740 resistance level will be the key level for a higher high formation. If STI manages to hold and bounce off 2680 support level, STI will likely start its uptrend movement to head for a higher level. Alternatively, if STI manages to break 2740 resistance level, it will definitely help STI to head for the next resistance level. Based on the short-term indicators, STI is more likely to take the retracement route towards 2680 support level before we can further measure whether STI would have the chance to head for uptrend confirmation. Henceforth, given that there is a good chance for uptrend formation, one can be cautious start looking to go long to take advantage of the possible uptrend.

 

What to watch out for this week:

1)      Testing of support at 2680 level

2)      Rebounding of 2680 support level

3)      Testing of 2740 resistance level

4)      Breaking of 2740 resistance level

 

 

Trading strategy to adapt right now:

-          Long trader can choose to take some risk when support level is tested. Tight stop loss should be adopted as uptrend is still not confirmed yet.

-          Shortist should take strong consideration to reduce or close their short positions as the downtrend have been changed. Adopt tight trailing stop or close short position when support level is tested.

 

 

*Disclaimer:

This analysis 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.

Please consult your respective advisers.