Daily Market Outlook for 12-Jan-2012

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STI continue its bullish movement yesterday and it managed to break its recent high of 2733 level. Traders’ fears have started to ease as the US economy was showing positive signs of recovery during its earnings reporting season. STI opened flat yesterday but it started climbing up as participants were bullish of the offshore sector. The positive sentiments from the offshore sector soon start to spread to the rest of the sectors and thus, tested the important resistance level of 2740 level. Trading volume also increased strongly as market confidence starts to build up. STI ended at 2747 level which is 27 pts higher than the previous day. Last night, DJI traded in red as profit taking starts to appear in the market. Will STI be able to stay above 2740 resistance level or could yesterday’s action be just a whipsaw?

STI ended with a long white candle with heavy volume yesterday. This long white candle signifies the bullish momentum is strong and this could have confirmed the breakout of 2740 resistance level. Its heavy volume could have indicated that its bullish strength will be sustainable. The short term indicators were also showing bullish signs. Stochastic started to form a bullish crossover again which MacD have just crossed over the 0 line. MacD trading above 0 line is a sign that uptrend is formed as long as it stays above it. However, RSI have just entered the overbought region and this can cap STI’s upside. The next resistance level for STI stands at 2780 level and this will be the key level to determine if the weekly trend of STI would change back to uptrend again. Breaking 2780 level is unlikely for now.

The banks surged strongly yesterday as they managed to gain back their bullish momentum again. Uob is now trading above its 20ma again but it ended at its sideways resistance level of 15.76. DBS is also buoyant by the bullishness and it ended 2.2% higher. This made it close at 50ma resistance line and is now facing resistance from it. Hence, the banks are mostly trading at their resistance levels. The offshores were showing the strongest bullish movement for the past few days. Kepcorp continued its bullish streak and eventually ended above 200ma yesterday. If it is above to stay above 200ma, its uptrend will be sustainable for a long period. Sembmar is the strongest among the offshore sector as it ends 5.3% higher. It managed to break weekly charts high and is now heading towards its 200ma resistance line. However, despite their strong bullish movement, they are likely targets for profit taking as the indicators are starting to show overbought situation.

The properties had a weak start yesterday morning but they were able to end the day bullishly. Citydev continues its bullish streak and is now heading to close it strong gap down during December last year after the government curb announcement. Kepland also enjoyed a boost in trading activity can to continue to head higher and tested its 50ma resistance line. Hence, the downtrend momentum of the properties might have come to an end as signs of uptrend start to develop. Most of the commodities ended marginal higher yesterday. Olam showed strong bullish movement yesterday as it attempts to chase Sakari’s bullish movement for the past few days. Olam and Sakari have been showing similar price movement for the past few weeks and they might mimic each other’s price action. Noble grp have ended its losing streak yesterday as it attempts to rebound for a lower low formation. Noble grp is likely to be resisted by the 20ma line at around 1.145 level if it rebounds.

In conclusion, STI have now truly confirmed its uptrend price movement after it have managed to form a lower low at 2680 support level and even breaks 2740 resistance level to seek for a higher high. Uptrend movement is likely to be sustainable as trading volume starts to build up which shows market interest to be increasing. Despite the positive expectations, STI’s upside will be capped at 2780 for the upcoming days as the indicators are starting to show signs of overbought. Offshore sector will continue to help STI to stay strong but most importantly, the banks and properties sector must confirm its uptrend formation clearly before STI’s uptrend will be truly sustainable.

Long traders should be satisfied with their current long positions and to avoid adding more positions. Overbought signs are starting to show and this would mean upside would be capped. Risk and Reward ratio might not provide good incentives to enter long positions currently. Shortists whom have short position should have already closed their short positions. Shortist should now be preparing counter-trend strategies when STI reach its resistance level at 2780.