Daily Market Outlook for 13-Jan-2012

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STI’s bullish movement came to a halt yesterday after participants where concern about whether this bullish run would be sustainable or not. It opened slightly down and tested the breakout level of 2740 and attempted to trade below it. However, bullish players came in to support the new support level and prevent it from trading lower than 2740. There was buying pressure during the day as it reached as high as 2759 level but it failed to maintain its high before closing. STI ended at 2743 level, which is 3pts lower and it closed with an average trading volume. Last night, DJI which started in the red managed to close 21 pts higher after a volatile session. Will STI be able to continue towards 2790 resistance level despite its drop yesterday? Or will STI starts to trade below 2740 level again?

STI closed with a small white candle with long upper shadow. It also had lower shadow which tested the breakout level of 2740 and the 100ma support line. This testing of 2740 level could be an indication that the support at 2740 level is holding well and could be sustainable. However, its long upper shadow indicates that STI is losing its bullish momentum and selling pressure is starting to enter the market. Hence, the short term indicators will help to confirm this reading. Both of the Histogram and Stochastic are still indicating bullish readings. Stochastic is seen to enter the overbought region and this could indicate that STI’s upside is getting limited. Henceforth, STI might still have strength to head towards 2790 resistance level while yesterday’s price action could be an action to test the breakout level to confirm the bullishness.

The banks had a buoyant day as most of them managed to trade out of their resistance levels. Uob managed to break out of its sideways resistance level of 15.76 level and this could have helped it to change its trend to uptrend again. DBS continues its bullish streak and this time it managed to break its resistance level of 50 & 100ma. This price action could also have help DBS to achieve its trend reversal to uptrend. Ocbc, however, is still struggling to achieve bullishness as it is still stuck in the sideways range. If Ocbc is able to break 8.08 resistance level, it will start to behave like Uob movement yesterday. The offshore have started to show signs of weakness yesterday after a streak of bullish movements. Sembmar which have surged strongly, ended with a bearish harami candle pattern and this could indicate a possibility of retracement. Sembcorp also have similar formation as it hit its immediate resistance level. Hence, the offshore is now in the risk of retracing.

The properties were unable to maintain their bullish momentum yesterday and this dragged STI down. Citydev suffered the largest drop as it gains for the previous 2 days were return by yesterday’s drop. However, Citydev is still able to maintain above 20ma line and hence, its bullishness might still be intact as long as 20ma support holds. Kepland also starts to show signs that it is unable to break the 50ma resistance line and could start a retracement. The commodities mostly ended lower yesterday while some still remains bullish. Indoagri was the star yesterday as it continues its bullish streak after a breakout of sideways. However, Indoagri faced another resistance level at 1.40 level and might have trouble breaking it as indicators are starting to show its overbought condition. Wilmar is still having trouble to break its 50 & 100ma resistance level yesterday and it might continue to trade between 20ma and 50ma for the upcoming days.

In conclusion, STI could continue to head higher despite some selling pressure is seen yesterday. The banking sector will now be the key sector to push STI higher as most they have broken out from their resistance levels. However, the offshores and properties might drag the upside of STI as are might be due to retrace. Hence, in order for STI to tap the remaining bullish strength to react 2790 resistance level, the commodities could be the upcoming sector to push STI to run the final league of upside. With positive closing from the US market last night, STI is likely to ignore yesterday’s bearish movement and continue to head higher. 2740 level will now turn into a strong support level after it is being tested yesterday.

Long traders can continue to enjoy the ride on the upside and continue to ride their profits higher. Selective long positions can still be entered but the conditions are that it must be trading at support level with a possibility of turning uptrend. Ocbc and Wilmar fits into such conditions and breakout strategy can be adopted. Shortist on the other hand should be convinced that STI have started to turn uptrend and should avoid riding the downtrend already. Yesterday’s price action might seem to be a condition to enter short position but STI is yet to reach its resistance yet. Hence, Shortist should wait till STI reach its resistance level before thinking of entering a counter-trend short position.