Daily Market Outlook for 17-Jan-2012

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Yesterday, STI returned all the gains that it had achieved on Friday. It opened with a strong gap down in the opening as Euro concerns starts to linger in the market again. Concerns of credit rating downgrade in the European market are what the traders were concern of yesterday. Selling pressure continued gradually throughout the day but trading volume was not strong. Slight rebound was seen in the market before closing after the European market opens with slightly on the positive side. Hence, STI closed at 2756 level, 35 pts down. Last night, DJI ended lower by 28 points in reaction to the credit rating downgrade in Europe. The DJI started even lower but it managed to recover before market closes. Will STI continue to retrace towards 2740 support level today?

STI closed with a black candle that looks like one black crow bearish reversal pattern. This has indicated that STI had hit the resistance at 2790 and is likely to retrace to form the higher high formation. The short term indicators also triggered bearish signal after yesterday’s drop. Both RSI and Stochastic are now starting to trade out of the overbought zone and this clearly indicates that the retracement is in play right now. Henceforth, with the bearish short term readings, STI will now be heading to test the immediate support level of 2740. 2740 level should be a strong support level to maintain STI’s uptrend movement.

The banks’ bullish movement came to a halt yesterday as concerns of credit rating downgrade in Europe will affect the local bank’s earnings. DBS had the biggest hit as market deemed that they might have the biggest exposure to European market. Bearish indications were triggered in the indicators and DBS is likely to retrace towards its support level around 12.30 level. The rest of the banks behaved similarly and were also heading towards their immediate support. However, Ocbc had tested its support level yesterday and its’ candle formation have indicated that the support is holding yesterday. The offshores ended lower yesterday as traders starts to take profits off this sector. Sembcorp and Sembmar opened deeply down yesterday but it managed to rebound during the intraday. This signifies that its underlying bullish strength is still intact and their bullish strength can push the price higher.

The properties ended slightly down yesterday after announcements of the private home sales figure last quarter. Private home sales were down strongly after government’s measure to curb speculation. However, this bad news did not have a very strong impact on the prices of the properties sector yesterday. F&N was the only one that suffered strong selling pressure but its price have now retraced back to the 20ma line. F&N’s uptrend is still intact and might continue from here. The commodities were trading mixed yesterday as only selective counters were able to behave bullishly. Olam was able to end up positive as it managed to stay above its 20ma line. However, its upside is still capped by 50ma line.

In conclusion, STI have hit the resistance at 2790 level the previous. Numerous sectors also faced their immediate resistance level and started to retrace strongly yesterday. The uptrend’s higher high could have been formed at this point in time and a retracement is needed for a higher low to form. Hence, STI is likely to retrace further towards its immediate support level of 2740 before it can break this 2790 resistance level. 2740 support level has a high chance of holding as it is a strong support level that confluence with multiple MA lines. Henceforth, long opportunities can be established when STI reach 2740 support level.

Long traders should wait patiently for STI to hit its support level before looking for long opportunities. Current long positions should rely on the trailing stop to protect the profits. Shortist might have ended shorting positions yesterday but they must be aware that the downside is getting limited. Quick profit should be taken when targets is met.