Bullish run likely to continue after retracement.

Last week, STI enjoyed a bullish run after it had tested its immediate support level at 2680. STI started with a retracement which managed to test 2680 support level. This support level held well and caused STI to rebound strongly towards its resistance level. A higher low formation was also formed and hence, STI’s uptrend price movement is being confirmed. Because of this, STI propelled higher by breaking its immediate resistance of 2740. 2740 resistance was the key level as it is a strong resistance level that has multiple MA line confluences. Breaking of this resistance allowed STI to head toward the next resistance level of 2790. STI ended its bullish week at 2790 resistance level.

Many have questioned whether it is time to enter the market; while many were still doubtful that this bullish movement is just a “Capricorn effect” and the strength will not be sustainable. How will market behave this week before the start of CNY holidays?
Let’s analyse the chart for clues.

Trend: Uptrend, 20ma up, MacD above 0

 

Support: 2740 (50 & 100ma), 2680 (20ma), 2640

 

Resistance: 2790, 2840, 2890

 

Observations:

Candlestick – Long white candle.

Histogram – 4Gs. Bullish divergence confirmed.

RSI – Around 72%. Overbought. Bullish divergence confirmed.

Stochastic – Around 90%. Overbought.

Bollinger Band – Out of upper band. Band opening up after squeeze.

 

Conclusion:

Bouncing off the support level of 2680 had helped STI to confirm its uptrend movement as a higher low formation is formed again. Hence, as higher high formation is expected to form after higher low formation, STI managed to break the strong resistance level of 2740. As STI managed to break 100ma resistance level too, this implies that STI is trading above 20 weekly MA level. This might mean that the weekly chart’s downtrend movement might also have been changed to either sideways of even uptrend. However, the key right now is for STI to stay above 100ma line. If it is above to stay above this 100ma, it would mean that STI’s current uptrend will be sustainable for a longer run.

 

The mid-term indicators were showing clearly that the uptrend had turned uptrend after last week’s price action. MacD is now above 0 while RSI clearly stayed above 50% level. 20ma have also started to point upwards and will likely to continue to move higher. The short term indicators were still indicating bullish readings but are starting to show obvious overbought readings. Both Stochastic and RSI were indicating overbought in conjunction with price trading out of Bollinger’s upper band. These increase the odds of a retracement to happen.

 

As a higher high is expected to be forming now, resistance levels will be where it will be forming. The immediate resistance level for STI now stands at 2790 level. Last Friday, STI closed at 2790 level and it might be a good level for STI to starts its retracement. 2790 level can be a strong resistance level as it is a lower high level in the weekly chart. If STI is able to break this resistance level, it would mean that the weekly chart’s trend might have turn into uptrend. Therefore, 2790 is a key resistance level it will determine STI’s weekly direction. With the short term indicators’ readings, it is unlikely that STI would be able to break this resistance level as the price is in overbought currently.

 

Therefore, there is a higher chance that STI would start its retracement this week in order to form a higher high formation. Since a higher high is to be formed, higher low formation will be coming next. Hence, support levels should be identified in order to determine where long positions can be executed. Currently, the immediate support level for STI stands at 2740 level. 2740 can be a very strong support level as it has confluences with both 50 & 100ma line. Alternatively, STI might also retrace towards its 20ma line which is currently sitting at 2680 level. However, if STI test 2680 level instead, it might mean that higher low formation might not be formed. Hence, STI must hold at 2740 level in order for its uptrend to be sustainable.

 

In conclusion, the uptrend movement for STI is confirmed and will be sustainable as long as STI stay supported at 2740 level. For this week, there is a higher chance of retracement for STI as the indicators were showing overbought signals. Furthermore, STI did not managed to break its immediate resistance level at 2790 level as this resistance level is strong. Therefore, STI might not be able to break this resistance level during the start of the week and might be retracing this week. Retracement target will be towards 2740 level and 2740 level must hold in order for this uptrend movement to be sustainable. Trading volume will likely to tamper downwards as CNY holidays is approaching. Hence, some trading volatility should be expected to be happening this week.

 

What to watch out for this week:

1)      Testing of support at 2740 level

2)      Testing of 2790 resistance level

3)      Breaking of 2790 resistance level

 

 

Trading strategy to adapt right now:

-          Long traders should take some profit off the market as it had reached its resistance level. New long positions can be initiated once support level is tested and proven to be holding well.

-          Shortists have to adopt counter trend short strategy this week as STI had turned uptrend. Aggressive shorting should be avoided as the odds are not on the shorting side.

 

 

*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.