Daily Market Outlook for 20-Jan-2012

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STI inched higher yesterday as it the market sentiment remains bullish despite a possible reversal during the previous day. STI opened with a gap up which recovered much of the losses made during the previous day. The trading action was relatively flat throughout the day as traders were getting more cautious of its upcoming directions. STI ended 15pts higher with heavy volume traded. Last night, DJI closed 45pts higher. Will STI be able to continue its upside movement towards 2840 resistance level today? Or will selling sentiment starts to set in as traders brace themselves for a long CNY holiday?

STI closed with a doji like pattern yesterday. This candle pattern indicates that the market is indecisive of its directions and is treading cautiously. The bearish reversal pattern failed to confirm yesterday as STI did not drop lower yesterday. However, chances of retracement are still high as STI is getting closer to the resistance level of 2840. Stochastic still remains in the overbought region while RSI is starting to climb back into overbought. Upside is getting limited. Hence, the resistance level at 2840 is very likely to hold and resist STI from going higher.

The banks, with exception of Ocbc, managed to trade higher. Both Uob and DBS continued to attempt to test its immediate resistance level but failed to break it and ended with doji like formation. Ocbc on the other hand suffered selling pressure as concerns of the step down of the CEO might affect Ocbc’s future earnings. Ocbc still remains healthy above 20ma despite the selling pressure. The offshores were trading mixed yesterday and are starting to experience fatigue in climbing higher. Kepcorp reversed its earnings and started retracing slightly yesterday. Sembmar failed to trade higher but got supported by the 200ma line. The offshores closed with black candles and this could be an indication that they might be retracing soon.

The properties were enjoying some bullish strength yesterday. The market might have rotated to properties sectors to push its prices up. Capitaland and Kepland were the main beneficial of the bullish strength. Capitaland managed to break its 50 & 100ma resistance line and it reached the gap resistance level that was formed when the government announced the property curb. Kepland similar enjoyed huge trading interest yesterday and it managed to test its 100ma yesterday. Citydev might be the next target to enjoy such bullish run. The commodities were trading mixed yesterday as traders were selective. Noble grp, Olam and Sakari continues to enjoy bullish movement yesterday. Olam continues its strong bullish streak for 4 days and it managed to test 200ma line yesterday. Its upside might be limited by the 200ma line. Sakari managed to break its 100ma line yesterday and will be testing its gap resistance between 2.25 – 2.28 levels soon.

In conclusion, STI’s upside is indeed getting more and more limited. Sectors that have contributed to STI’s surge are now nearing their individual resistance levels. Their candle formations are also starting to show fatigue in bullish strength. In order for STI to hit 2840 resistance level, properties sector and commodities sector are the 2 remaining sectors that can aid STI to reach that level. Banks and Offshores are now in the risk of dragging STI lower or maintain STI at its current level. Rotational plays are starting to be seen in the market and mid cap can be expected to move in the coming weeks. As for today, STI will still continue to head higher but selling might set in as traders might close their positions before the CNY holidays.

Long traders can only adopt breakout strategy to enter long position currently. However, due to the limited upside for the market, risk and reward might not be favourable right now and hence, waiting for a retracement to go long will be a better strategy. Shortists have to set aside to wait for proper bearish sign before entering short position. Risk-takers might want to target short positions on offshore sectors as they are showing signs of weakness. Stop loss level for short positions must be very tight right now and it comes with lower probability of success.