Daily Market Outlook for 7-Feb-2012

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STI gapped up strongly after the US’s better than expect job data was announced. Traders make used of this opportunity to push the price higher. STI opened at 2948 level which immediately broke the resistance level of 2920. It tried to push higher during the early trading session which reached as high as 2959 level before selling pressure starts to set in again. Selling pressure starts after lunch as Europe market opened slightly red causing some concerns in the market. Hence, STI closed at 2940, 22.15pts higher with significant trading volume. Last night, DJI struggled to stay bullish but it still remains 17.1pts down after opening much lower. Will STI be able to sustain its gains today? Or will STI do its gap covering action today?

STI closed with a black candle with upper shadow after a strong gap up movement. This candle indicates that STI faces some selling pressure and might be facing a resistance level. The immediate resistance level for STI is now deemed to be at 2960 level. The short-term indicators are still showing bearish momentum but they are starting to weaken. Stochastic is starting to show a possible bullish crossover and if STI trades higher today, it will confirm the crossover to trigger a bullish signal. With a bearish candle pattern, there is a chance of STI to retrace slightly to close the gap it had created. 2931 – 2939 levels will be the gap support range which STI might try to cover it either today or the next period. With possible bullish crossover in the Stochastic, STI might continue to attempt to higher high and test its immediate resistance level of 2960.

The banks attempted to trade higher with a gap opening but they failed to sustain their gains and closed lower than their opening. Ocbc even failed to close in the positive region which ended up 4cts lower. Its candle formation had caused it to form a bearish dark cloud cover formation. At the same time, this formation formed at 200ma line and this could mean that Ocbc is facing strong resistance from 200ma. Selling pressure is to be expected for OCBC. The offshores were performing strongly yesterday after they struggled to trade higher last week. Sembcorp managed to exhibit a break out yesterday and it should be heading towards its next resistance at 4.90 level or even 5.00 level. Kepcorp formed a clear higher low formation and it is likely that it will seek its immediate resistance to break it to form a higher high. Immediate resistance of Kepcorp stands at 10.85 level.

Most of the properties managed to trade higher yesterday despite the market experiencing some selling pressure yesterday. Capitaland is one of the stronger performers yesterday as it attempted to break the 200ma resistance line. However, it failed to break it yesterday and might attempt to break it again today. Citydev on the other hand, managed to break with a gap up yesterday. Citydev have also achieved a higher high breakout and should be heading for the next resistance level to form a higher high formation. The next resistance level for Citydev will be around 10.58 level. The commodities continue their strong performance yesterday as many managed to break out for a higher high. Noble grp and Golden agri managed to break their recent high and confirmed their continuation of uptrend for a higher high. Olam and Sakari which has been in the limelight failed to break their recent high and ended up with black candles. If they manage to break out from their recent high resistance level, it will bring more upside to these 2 counters.

In conclusion, STI had managed to break 2920 resistance level with a strong gap up. A gap support has now been formed at 2931 – 2939 levels. There is a possibility of STI retracing to close this gap support but there is a higher possibility that STI will head higher as there is bullish indications in the indicators. 2960 is the immediate resistance level for STI as it struggled to break it yesterday. In order for STI to break this resistance level, the banking sector must be performing bullishly in order for it to happen. Hence, the banking sector is the key on whether STI will be able to break its immediate resistance level. Currently, the rest of the sectors are still enjoying their bullish runs and they will help STI to maintain above 2920 level.

Long traders should start to be careful in selection of counters to long. Numerous counters have already bounced off their support level and break for a higher high. Breakout strategy can be adopted right now but it might not yield good risk and reward. Shortist have to stay sidelines for the time being until there is weakening in the current bullish sentiment. Resistance level should be eyed for bearish candle patterns.