Strong Bullish movement is set to continue in STI after CNY Holidays

STI enjoyed a very bullish week before despite the upcoming CNY holidays. STI started the week with a slight retracement towards 2740 support level which it held well. 2790 resistance was quickly broken on Tuesday causing an influx of buyers to flood into the market. Trading volume started to increase strongly last week causing STI to close at 2849 level. STI was up 57pts for the week which brought STI to trade higher for three consecutive weeks. The bullishness for this week was mainly due to positive economic data of the China economy which in turn brought positive sentiment to Singapore market. Some attributed that the market is having a “feel good” sentiment due to the upcoming CNY.

Regardless of whatever reason people cited, STI indeed has surged strongly for the past 3 weeks and many were wary of buying at current high levels. On the other hand, many were also fearful of missing the opportunity as prices could still be on the low level despite such strong movements. Hence, the key question is whether it will still be worth to enter the market right now.
The charts should give us directions on what to do.

Trend: Uptrend, 20ma up, MacD above 0

 

Support: 2790, 2740 (20, 50 & 100ma), 2680

 

Resistance: 2850, 2890 (200ma), 2920

 

Observations:

Candlestick – Long white candle.

Histogram – 1G after 2Rs. No bearish divergence seen.

RSI – Around 72%. Overbought. No bearish divergence seen.

Stochastic – Around 90%. Overbought.

Bollinger Band – Slightly out of upper band. Band continues to open up.

 

Conclusion:

STI did a quick retracement last Monday and bounces off before even testing 2740 support level. This can be seen as a short term higher low formation for STI. Breaking of 2790 resistance level also confirmed that STI’s uptrend will be sustainable as a higher high will be formed. Hence, it resulted in STI heading towards 2850 level to test its next resistance level on Friday. Breaking of 2790 is significant because STI broke out of a significant lower high formation that was form on early Dec period. Hence, it is a strong confirmation of STI’s trend changing to uptrend and therefore, it will be deemed to be sustainable. However, due to current strong movement for the past weeks, there isn’t any significant retracement happening in the market. Hence, there is still a risk of STI to encounter a deeper retracement before it is able to head higher.

 

The mid-term indicators continues to show uptrend indication as 20ma is obviously trending upwards while MacD is obviously above 0. The short-term indicators were still showing bullish strength while they continue to trade in oversold positions. RSI and Stochastic has been weaving in and out of the oversold region for the past few weeks. This kind of movement is a mark of a strong bull and can remain in this manner for a long period. Despite bullish readings from the indicators, the fact with the market right now is that it is still overbought. Therefore, it will still be running a risk of a retracement if resistance levels are unable to break.

 

STI went against the odds and failed to form a higher high formation at 2790 resistance. Therefore, it might be forming its higher high at another resistance level instead. STI’s current immediate resistance now stands at around 2850 levels, which STI closes near to this resistance level. Currently, Friday’s candle pattern did not show that STI is having trouble breaking this resistance. Furthermore, strong trading volume might also be an indication of strength that might help STI to trade higher. Hence, there is a good possibility that STI might also break 2850 resistance level and head for the next resistance level of 2890. In order to know which level that STI will likely form a higher high formation, we need to wait for a bearish reversal formation to form at either of the resistance levels.

 

If STI did not manage to break 2850 resistance level after the CNY holidays, it will likely to start a retracement movement towards its support levels. Currently, STI’s support level is at 2790 level as the resistance has now turned into support. However, a stronger support level now stands at 2740 level as it has multiple confluences with 20, 50 & 100ma lines. This will be a good level for STI to form a higher low formation in order for it to continue its uptrend movements.

 

In conclusion, STI’s uptrend is expected to continue after the CNY holidays. Currently, one can expect 2 possibilities that are going to happen after CNY holidays. First, STI managed to break its immediate resistance at 2850 level and it will head towards 2890 to test it. 2890 will be a good level for higher high formation as it confluences with the 200ma resistance line. Secondly, if STI failed to break 2850 resistance, it will likely to retrace towards 2790 support level and test it. In the worst case scenario, if the retracement is strong, 2740 support level will most likely hold the market well.

 

What to watch out for this week:

1)      Breaking of 2850 resistance level

2)      Testing of 2890 resistance level

3)      Retracement to 2790 support level

 

 

Trading strategy to adapt right now:

-          Long traders should continue to look for opportunities to take some profits off the market in order to avoid sudden retracement happening.

-          Shortists can continue to look out for countertrend opportunities as long as off good risk reward. Stay sidelines for Shortists can also be a good strategy as this market is encountering a strong bull.

 

 

*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.